Less than one in five investors are thinking of selling the highly popular Stewart Investors Asia Pacific Leaders following the ‘stepping aside’ of long term manager Angus Tulloch (pictured), according to research by FE Trustnet.
Just 18.36 per cent of the near 1,000 readers polled said they were looking to sell the £7.8bn Stewart Investors (formerly First State) Asia Pacific Leaders fund following the news that star manager Angus Tulloch, who has co-managed Stewart Investors Asia Pacific and Stewart Investors Asia Pacific Leaders since 1988 and 2003, respectively, is moving on from the direct management of the portfolio.
According to FE Analytics, Tulloch has an excellent track record having outperformed his peer group composite’s returns by more than double over the past 15 years.
Performance of manager vs composite since 2000
Source: FE Analytics
A strategy focusing on quality, dividend paying companies has clearly worked well over the longer term for Stewart Investors Asia Pacific Leaders, with the portfolio clocking up top-quartile returns over one, three, five and ten years and since launch in 2003.
However, like most portfolios it does not always outperform its peers for a variety of reasons. For example, while it has done best in years when markets were generally weak, it has lagged in rallies such as in 2009 when it was the second worst in the sector missing out on 20 percentage points of upside captured by the sector average.
In this article we take a look at the funds the experts think could ‘dovetail’ with the portfolio so as to garner a smoother long-term return.
First up Meera Hearnden, senior investment manager at Parmenion tips what she says is a fairly ‘under the radar’ portfolio, which she says will fit agreeably with the approach consistent with Stewart Investors Asia Pacific Leaders.
“We use the Stewart Investors Asia Pacific Leaders Fund as our core Asian fund in the majority of our portfolios. However, a fund that I also like and could sit alongside the Stewart Investors Fund is the Veritas Asian fund,” Hearnden said.
“The fund doesn’t get the lion’s share of the attention but it has delivered impressive risk adjusted returns over one, three and five years and has a disciplined thematic process which drives stock selection. Long term holdings form the core of the portfolio focused on investment ideas and themes over a three to five year time horizon.”
“There are also short term trading ideas seeking to benefit from any cyclical upturns and special situations.”
While Veritas is best known for their top performing Veritas Global Equity Income fund this $543m Asian fund is swiftly growing in size.
Run by FE Alpha Manager Ezra Sun for more than a decade, it has performed strongly since its launch in October 2004. It has been the third best performing fund in the IA Asia Pacific ex Japan sector with returns of 314.78 per cent.
In contrast, the MSCI Asia Pacific ex Japan benchmark has returned 125 percentage points more over that time.
Performance of fund versus sector and index since October 2004
Source: FE Analytics
The fund, which is Dublin-domiciled, has had higher volatility and beta than Stewart Investors Asia Pacific Leaders but is significantly smoother in performance than the index and sector.
In comparison to the sector average, Sun has a high weighting to Australian equities. While the likes of Chinese Tencent and AIA, the manager has 23 per cent in Australia.
The fund has a clean ongoing charges figure [OCF] of 1.22 per cent.
Next up, investment analyst at Hargreaves Lansdown Heather Ferguson says a broader mandated smaller companies fund would work well alongside Stewart Investors Asia Pacific Leaders.
“The Schroder Small Cap Discovery Fund compliments this nicely as it focuses on smaller firms. This combined exposure to some of the world's most innovative smaller companies, with the long-term growth potential of Asian and emerging markets, is an exciting prospect.”
“The Schroder fund offers a different spin on the region as smaller companies are well-represented in the consumer, industrials, technology, and healthcare sectors.”
Matthew Dobbs’ £124m Schroder Small Cap Discovery portfolio is tilted towards emerging Asia and Japan, but does have some exposure to developed markets as well.
Schroder Small Cap Discovery has been managed Dobbs since launch in 20212 since which it has returned 28.42 per cent.
It has a clean OCF of 1.01 per cent.
Ben Willis, head of research at Whitechurch Securities, says Jonathan Pines’ Hermes Asia ex Japan Equity fund is his team’s choice for the region.
“We use Hermes Asia Ex Japan Equity to complement our core exposure to Stewart Asia Pacific Leaders, which adopts a quality growth focus. The Hermes fund is more value orientated, preferring to eke out selective value opportunities in China, Taiwan and Korea, its biggest overweight versus its MSCI benchmark.”
“Pines will also invest lower down the cap scale than the Stewart fund. Combining the two works very well as the Hermes fund tends to outperform when markets are rising, whereas the defensive positioned Stewart fund will defend capital when markets are falling.
Pines’ Hermes Asia ex Japan Equity fund is unlike the majority who invest in the region given his focus on companies he believes to be undervalued.
The approach has so far worked well for Pines who is leading the returns in the IA Asia Pacific ex Japan sector since launch in November 2012 with a gain of 55.28 per cent – almost five times the return of the index and sector average.
Performance of fund versus sector and index since launch
Source: FE Analytics
Having a value tilt the fund seems to have suffered from a cyclical trend affecting this part of the market during summer months. though
The fund has a clean OCF of 0.86 per cent.
Blackrock Asia Special Situations
Lastly, Caspar Rock, chief investment officer of Architas thinks Blackrock Asia Special Situations fund is the ideal portfolio to balance out Stewart Asia Pacific Leaders.
“As well as displaying many positive attributes in its own right, the Blackrock fund, managed by Andrew Swan & Emily Dong, has many complementary factors to the offering from Stewart’s.”
“Whereas Stewart Asia focusses 100 per cent on bottom-up stock specifics, sometimes leaving investors underexposed to the faster growing emerging Asian countries, Blackrock, although bottom-up, additionally adds a macroeconomic overlay in order to take more strategic opportunities.”
“Although these are within strict risk parameters. This gives a blended portfolio more dynamism and is a more practical way of investing in Asia, giving investors a more balanced exposure to countries, industries, styles and risks within Asia.
The £73m fund has only been managed by Andrew Swan since 2014 and so a much shorter track record than the other portfolios mentioned.
Since Swan took over it has done very well, with a return fourth best in the sector of more than 20 per cent.
Performance of fund versus sector and index under Swan
Source: FE Analytics
Rock adds: “Blackrock additionally adds a breadth of expertise in some of the higher growth emerging markets in Asia, particularly China, where they have added hugely to their research capabilities.”
The fund has a clean OCF of 1.68 per cent.