ASI Asia Pacific Equity: December 2020 fund update

Kate Marshall | Wed 06 January 2021

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• This fund is run by a team with one of the longest records of investing in Asia
• The Asian equities process and team was originally set up by Hugh Young, a highly influential Asian equities investor
• We like the team’s long-term focus, but willingness to be flexible in the hunt for the best opportunities
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

This fund aims to boost long-term growth by investing in a wide range of Asian markets, including both established and less-developed economies such as China, South Korea, Australia and India. It could therefore provide broad exposure to the Asia Pacific region and 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 Managing Director of the Asian equities group. He was instrumental in setting up the group's Asian equities strategy, including the launch of this fund in 1987. While he no longer makes the day-to-day decisions over the construction of the fund, he carries out research that can be utilised by the team and we view it positively that he's still a part of the wider team. Flavia Cheong is Head of Asia Pacific Equities and leads the team of five directly looking after the fund, with key input into its final construction.

A broader team of analysts and portfolio managers has been built over time, providing vital support on this fund and other Asian and emerging markets funds. Each team member contributes research and stock ideas, and 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.

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. In particular they look for companies they believe can produce earnings that are more resilient than their competitors.

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.

The team has increased the fund’s exposure to the tech sector over the past few years, including hardware, software, internet, and ecommerce businesses. The fund’s largest holdings currently include Chinese internet company Tencent, South Korea’s Samsung Electronics, and Taiwan Semiconductor Manufacturing. Newer additions to the fund include computer chip manufacturer ASML, Chinese ecommerce platform Alibaba, and Meituan, a Chinese business offering a range of online services, such as entertainment and food delivery.

This has contributed to the increasing exposure to China, which stands at 35% as at 30 November. On the other hand, investments in Singapore have continued to decrease from a peak of around 25% to 4.5%, partly as some Singaporean banks have been sold. These banks provided access to emerging Asian countries, such as Indonesia, where the team sees growth potential. However, over the years they’ve found more and more high-quality companies based directly in emerging Asian countries.

Overall, the fund has typically had a bias towards businesses that could benefit from growing consumer wealth, though the team aims to have at least some exposure to most major sectors.

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.

The team is active in engaging with companies on environmental, social and governance issues, which they believe could lead to better outcomes for both investors and society over the long run.

Cost

This fund has an ongoing annual charge of 1.18%, but we've secured HL clients an ongoing saving of 0.55%. This means you pay a net ongoing charge of 0.63% and makes the fund the lowest-cost actively managed fund 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

ASI Asia Pacific Equity has outperformed the broad Asian stock market since launch in 1987. We think this is impressive as few Asian funds have managed to achieve such a strong track record over this length of time. As always, past performance isn’t a guide to future returns.

There have been periods of weaker performance as well though and, in particular, the fund underperformed the market between 2013 and 2018. A lack of investments in large, high-growth Chinese technology companies, which didn’t meet the team's quality threshold, held back performance, for example.

There's been an improvement in performance over the past couple of years, which our analysis suggests is partly down to good stock picking. The team believes the enhancements made to their investment process has also contributed to this. For example, team members now have more accountability for individual stock ideas. We are pleased to see this improvement, and that there appears to be increased focus in the team, though this is something we'll continue to monitor.

Looking at 2020, some of the fund’s best-performing stocks have been based in China, including some of the tech names. The team believes the governance standards at some of these companies has improved, leading to increased exposure in the fund. Samsung Electronics and Taiwan Semiconductor Manufacturing have also done well.

Over the longer term we think the team's focus on quality companies could help the fund hold up a bit better than others when markets fall, though this won’t happen all the time. This style means it might not do so well when the market races ahead. 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 30/11/2020.

Find out more about ASI Asia Pacific Equity fund including charges

ASI Asia Pacific Equity Key investor information