Asia has long been an exciting prospect for growth-hungry investors, but over the past few years the continent is becoming more of a primary driver of global markets, according to Fidelity Personal Investing’s Toby Sims.
Sims said the huge economies of China and India look set to swell as their growing middle classes become less reliant on Western exports and he believes that emerging markets such as Singapore also have “hidden value opportunities in some of the world’s fastest-expanding domestic economies”.
“An abundance of options like these is great – making sense of how to access them, however, can require an expert hand,” he added.
Below, Sims highlights three funds from the Fidelity Select 50 – a list of the wealth manager’s favourite funds – he believes are among the best funds for investing principally in Asia.
Stewart Investors Asia Pacific Leaders
The first fund is the £6.3bn Stewart Investors Asia Pacific Leaders fund run by FE fundinfo Alpha Manager David Gait and Sashi Reddy.
The four FE fundinfo Crown-rated quality-growth fund invests in mid- to large-sized companies that it believes can generate long-term outperformance across the region.
Sims highlighted the managers’ key focus on sustainability in their stock-selection process, favouring companies purposefully working for the good of the environment and global community.
“Theirs is a very ‘hands-on’ approach in determining companies’ sustainability credentials, these managers hope to get to know their stocks’ management teams first-hand, often visiting sites and building up reference checks from suppliers and competitors among other sources,” Sims said.
“This approach draws the managers to companies which stand out for their ‘social usefulness’ – i.e. ones that provide goods or services that society actually needs, and so stand to benefit from rising consumption levels across the region.”
Stewart Investors Asia Pacific Leaders fund’s largest holding is an example of this type of company: Marico, a coconut oil manufacturer that expanded its business from hair nourishment products to health foods as Indian consumption habits evolved.
In addition, the fund focuses on high-quality management, robust balance sheets and high levels of capital preservation.
Sims said, as a result, it may not soar through market highs, but “the managers’ conservative approach should position it well to perform through downturns”.
Performance of fund versus benchmark over 5yrs
Source: FE Analytics
Over the last five years, Stewart Investors Asia Pacific Leaders made a total return of 75.7 per cent, compared to 100.37 per cent from the MSCI AC Asia Pacific ex Japan benchmark. It has an ongoing charges figure (OCF) of 0.88 per cent.
Merian Asia Pacific
The second fund Sims highlighted is the £337m Merian Asia Pacific fund run by Amadeo Alentorn, Ian Heslop and FE fundinfo Alpha Manager Mike Servent.
The three FE fundinfo Crown-rated growth fund aims to provide capital growth by picking stocks via a rigorous selection process to determine a reliable return forecast.
It operates under the belief that markets are not fully efficient – i.e. there will be divergences between stocks’ fundamental values and trading prices.
Sims said the managers use a quantitative investment approach to construct a portfolio which they believe can outperform, keeping their selection process flexible in order to consistently capture the prevailing conditions and outlook.
Of the fund’s 247 holdings, the largest two are Alibaba and Tencent, among the region’s best-known growth names.
“Both these companies exemplify the sort of technology stocks which have pushed China’s economy to new heights in recent decades,” Sims said.
“What’s more, large Chinese companies like these have profited from the same sort of lockdown-imposed demands on technology that Western investors may recognise in the extreme market outperformance of US tech stocks like Apple and Microsoft.”
He highlighted how Ailbaba has stepped in to meet increased demand for online shopping and cloud computing and how Tencent has played the ‘Netflix’ role of fulfilling the need for home entertainment through its video games.
Performance of fund versus benchmark and sector over 5yrs
Source: FE Analytics
Over five years, Merian Asia Pacific leaders made a total return of 124.29 per cent, compared with a 100.37 per cent from its MSCI AC Asia Pacific ex Japan benchmark and 95.26 per cent for the average peer in the IA Asia Pacific Excluding Japan sector. It has an ongoing charges figure (OCF) of 1 per cent.
Maple-Brown Abbot Asia Pacific ex-Japan
The last strategy highlighted by Sims is the offshore $147m Maple-Brown Abbot Asia Pacific ex-Japan fund run by Geoff Bazzan.
The value-oriented fund looks for companies across the region which the manager believes are trading below their intrinsic value.
Sims said Bazzan takes a conservative approach, focusing on company fundamentals – analysing things such as balance sheet strength and dividend support before investing.
“As a value investor, his first thought is given to stocks’ potential downsides - he wants to know the worst-case scenario, in case the company’s outlook gets worse and it fails to recover,” Sims explained. “Once he is comfortable with what may be lost, he looks to how much can be gained - that is, if the stock picks up, how much upside opportunity does it present?”
Sims said the Maple Brown Abbot Asia Pacific ex-Japan manager focuses on the long-term investment horizon and takes a contrarian angle to stock-selection, using bottom-up analysis to determine if their intrinsic value is yet to be reflected in their price.
“In Bazzan’s eyes, this approach is particularly well suited to quickly expanding economies like China’s, where he feels that macroeconomic growth rates skew investors’ perspectives and leave companies undervalued,” he noted.
Sims believes the value-orientated, contrarian approach makes the fund ‘uniquely positioned’ to find opportunities amid periods of market downturn, especially when “uncertainty presents attractive valuations to quality companies which are well poised to recover their value in later upturns”.
Performance of fund versus benchmark and sector over 5yrs
Source: FE Analytics
Nevertheless, given the fund’s value approach it has underperformed the MSCI AC Asia Pacific benchmark in recent years as the style has remained out-of-favour.
Over five years, Maple-Brown Abbot Asia Pacific ex-Japan made a total return of 66.36 per cent, compared with 100.37 per cent from the benchmark and 80.65 per cent from its average peer in the FO Equity – Asia Pacific ex Japan sector. It has a total expense ratio of 1 per cent.