First State Asia Focus: May 2020 fund update

Kate Marshall | Thu 28 May 2020

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• This fund is run by a manager and team with a great pedigree of investing in Asia
• We like the culture and philosophy at First State – the managers view themselves as stewards of investors' capital, looking after it as though it's their own
• Martin Lau has an impressive track record of picking some of the region's best-performing companies over the long run
• This fund is on our Wealth 50 list of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

Long-term growth is the main aim of this fund, and the managers try to achieve more stable returns compared with others in the Asia sector. The fund could fit with other Asian funds that use a different or more adventurous investment approach, or form part of a broader global portfolio with a long-term outlook. It invests in developed Asian economies, such as Singapore and Hong Kong, as well as higher-risk emerging countries including India and Taiwan.

Manager

Martin Lau is the lead manager of this fund. He's one of the industry's most highly regarded Asian fund managers and has invested in the region for more than two decades. In that time he's managed a number of funds that invest more broadly across Asia, as well as those that focus specifically on China, an area he specialises in. Since joining First State Investments in 2002, he has built one of the most impressive track records investing in these markets.

Lau is a modest fund manager, and is open about both what has worked well and what hasn't in his funds. These are qualities we like. While we rate him highly, he isn't a one-man band. He's got a good-quality team of investors around him, who all follow the same process and provide each other with important challenge before stocks make it into their portfolios. Some team members are also portfolio managers with good track records in their own right.

Process

Martin Lau and his team look for quality companies they can invest in for the long term. They like those with a competitive advantage that others struggle to replicate, such as a well-known brand or the ability to raise prices for their products without affecting demand from customers. They should have the potential to grow earnings sustainably over the long run, and be run by reputable management teams that don't take unnecessary risks in the pursuit of short-term gains. Overall the team are conservative investors, looking after clients' money as if it's their own.

Importantly, companies must also take into account environmental, social and governance factors. They should cause little, if any, harm to the environment around them or the labour they employ, for example. Over time it's become an increasingly important part of the team's investment process. If they don't think a business meets these standards or is doing enough to address a particular problem, then they won't invest.

At the moment the fund mainly focuses on sectors that could benefit from rising consumer spending, such as technology, financials, and companies that produce consumer staples such as food and beverages. India and Hong Kong in particular are two of the places where the manager finds some of the highest-quality companies.

Culture

We like the culture and philosophy that's been cultivated at First State Stewart Asia (part of the broader First State Investments group). Their philosophy is founded on stewardship – when they make an investment, they see themselves as part-owners of the business and engage with companies to make sure they're run in a way that'll benefit all shareholders.

First State also places emphasis on recruiting and maintaining great people. Every manager and analyst is an advocate of the team's overriding philosophy. At the same time, their individual personalities are allowed to shine and they're encouraged to bring their own ideas to the table.

Lau is a Managing Partner of First State Stewart Asia, so we think he's incentivised to ensure the business, including its funds and people, are successful. He looks after its team of analysts and fund managers, which means he can pass on his knowledge and experience. It also means he has additional responsibilities, but we're confident he spends most of his time focused on looking after his clients' money.

First State Investments was acquired by Mitsubishi UFJ, a Japanese bank, in 2019. Takeovers can sometimes lead to disruption and corporate change, though positively First State Stewart Asia remains an independent investment team. That said, we will continue to look out for potential further change.

Cost

This fund has an ongoing annual charge of 0.90%, but we've secured HL clients an ongoing saving of 0.15%. This means you pay a net ongoing charge of 0.75% 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

Martin Lau has built an excellent long-term track record. The First State Asia Focus Fund launched in 2015 and it's since performed much better than the broader Asian stock market. Other funds Lau has run over longer periods have also outperformed their respective benchmarks. Our research shows he's achieved this by focusing on the prospects of individual companies, rather than taking a view of the wider economic environment.

Lau and his team are conservative in the way they manage money and they aim to limit losses in a falling market. They invest in companies they think will see consistent demand for their products or services and prosper over the long term, rather than chasing short-term fads. It means the fund has tended to hold up relatively well when markets have been rocky, but has lagged behind when they’ve risen strongly. We expect the fund to perform this way in future, but there are no guarantees and past performance isn't a guide to future returns. All investments fall as well as rise in value so you could get back less than you invest.

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2020.

Full year data prior to 2016 is unavailable.

More about First State Asia Focus, including charges

First State Asia Focus Key Investor Information