ASI Asia Pacific Equity: April 2020 fund update

Kate Marshall | Thu 30 April 2020

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• This fund is run by a team with one of the longest records of investing in Asia
• The team is spearheaded by Hugh Young, a highly influential Asian equities investor
• We like their long-term focus, but willingness to be flexible in the hunt for the best opportunities

How it fits in a portfolio

This fund aims to boost long-term growth. It invests in a wide range of Asian markets, including both established and less-developed economies such as China, India and Taiwan. This means it could provide core exposure to the Asia Pacific region and help diversify a global portfolio with a long-term view. Funds that focus on other regions, or specific countries, could be added alongside this one as part of a broader investment portfolio. The fund includes some investments in emerging markets, which adds risk.

Manager

Aberdeen Standard Investments is home to one of the most experienced teams investing in Asian companies. Hugh Young is Head of Asia Pacific and, along with Flavia Cheong, leads the team looking after this fund. He was instrumental in setting up the group's Asian equities strategy and has been involved with this fund's management since 1987. We view it positively that he's still a part of the team.

Over time Young has helped to build a strong team of analysts and portfolio managers around him, and they provide vital support on this fund, contributing research and stock ideas. We think their experience counts for a lot when it comes to investing across such a diverse range of economies. The team is based across the globe, from Singapore and Bangkok to Hong Kong and Kuala Lumpur. This provides them excellent access to companies, and insight into what's going on across the region. A group of five of the analysts then have key input into the final construction of this fund.

Process

The team's investment philosophy is based on 'long-term quality'. They believe most investors underestimate the sustainability of returns that many high-quality companies can make. They aim to find those that generate fairly steady rates of growth, which have been overlooked by others, and hold onto them for many years.

Companies in good financial health, run by robust and trustworthy management teams are favoured by the team. They often look for a change that could help boost profits in future, such as a new product or change in the use of technology. They sometimes invest in out-of-favour companies that can be bought at a more attractive share price.

Meeting company management is important to the team, and they can do this regularly as they’re based throughout Asia. They also like to engage with companies on environmental, social and governance issues, which could lead to better outcomes for both investors and society over the long run.

The fund has a bias towards businesses that rely on growing consumer wealth, but the team aims to have at least some exposure to most major sectors. They've used the market setback this year, brought on by the coronavirus outbreak, as a chance to invest in companies at cheaper prices. They've recently added to some of the fund's existing investments in Chinese companies, as well as to those in the semiconductor sector.

The team is confident about the longer-term trends and opportunities that will shape Asia's growth, such as the rise in consumption and demand for premium products, the development of new technologies, and the need for more and better infrastructure. They continue to invest in companies they think will benefit.

Culture

Hugh Young was one of the UK's first investors to build a franchise of Asian funds. The group has remained committed to investing in Asia ever since and we think this dedication is admirable.

Aberdeen merged with Standard Life in 2017 to become Aberdeen Standard Investments. The Asian Equities team subsequently made some small changes to their investment process, though the core of their philosophy remains intact. We're pleased to see the team has settled since the merger and encouraged they're willing to learn and keep improving what they do. We'll continue to keep an eye on the impact on performance and the team.

The broader team is responsible for a range of Asian and emerging markets funds. Each member provides input to the wider franchise, and they're willing to share their knowledge and experience to ensure their best ideas make it into the portfolios.

Cost

This fund has an ongoing annual charge of 1.21%, but we've secured HL clients an ongoing saving of 0.55%. This means you pay a net ongoing charge of 0.66% and makes the fund one of the lowest-cost funds available in the Asia Pacific ex Japan sector through HL. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund has performed better than the broad Asian stock market since launch in 1987. This is impressive as few Asian funds have managed to achieve such a strong track record over this length of time.

There have been periods of weaker performance as well though and, in particular, the fund underperformed the market between 2013-18. A lack of investments in large, high-growth Chinese technology companies, many of which don't meet the team's quality threshold, held back performance, for example. There's been a more recent improvement in performance, which our analysis suggests is down to good stock picking, though this is over a short timeframe and is something we'll continue to monitor.

We're positive about the fund's long-term prospects. We think the team's focus on quality companies could help the fund hold up a bit better than others when markets fall. We've seen this so far this year, though the fund has still delivered a negative return. It might miss out on gains in some of the more racy areas of the market though. This is also a reflection of how the fund has performed in the past, but past performance isn't a guide to how the fund will perform in future. Like all funds, the value could fall as well as rise so investors could get back less.

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2020.

More about ASI Asia Pacific Equity, including charges

ASI Asia Pacific Equity Key Investor Information