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A high conviction, Asia Pacific ex Japan equity fund. The approach is based upon the identification of companies with superior growth and quality credentials. Within its sector, the fund features in our 'Larger-Cap, Growth-Biased' category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 6. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 6 means the fund’s historic volatility is between 15% and 25%.
The score is in keeping with other growth funds in the sector, while its volatility is slightly higher than the index. Given the high conviction approach and growth bias, investors should expect variation in the fund’s relative risk and return profile. Different share classes could have differing SRRI scores.
The fund is managed by Joanna Kwok and Mark Davids, regional portfolio managers within the Emerging Markets and Asia Pacific team. This extensive team is headed by Ahuj Arora and is based in several locations across the globe.
The team believes that Asia Pacific equity markets are structurally inefficient and that volatility creates opportunity. They target companies with superior growth credentials, on the basis that those with sustainable/improving returns on capital and good management teams have the greatest potential to outperform over the long term.
This is a high conviction portfolio of 40-60 stocks and high active share characteristics. Typical active stock bets are up to +5% relative to benchmark and country/sector bets are in a range of +/-15%. Oversight occurs through systemised checks together with manual review procedures to ensure mandate adherence.
The process is driven by bottom-up stock selection, with ideas generated by country specialists, analysts and portfolio managers. The goal is to build conviction by combining multiple perspectives, including factor inputs from the quantitative screen. The country specialists have strong local knowledge at the country and stock level and engage regularly with companies. They rank their stock ideas to reflect their opinion of the likely relative performance of companies over the medium to long term. Sector analysts review stocks with a view to deciding whether a business is one they wish to own and then determining the price at which they find the expected return to be attractive. Their work is framed around clear steps, through which companies are classified as “premium” (very good returns to shareholders and a durable competitive position), “quality” (good businesses but where they have less confidence in the long-term value creation), “standard” (companies that are not challenged, but where the team’s confidence in the firm’s long-term value creation is lower than for quality or premium companies), and “challenged” (companies where the economics are below the cost of capital and unlikely to recover on a sustainable basis, or where there are significant concerns around duration and/or governance). This work incorporates a detailed risk assessment process, which has a heavy emphasis upon environmental, social and governance issues. Five-year expected returns are evaluated by assessing earnings growth, dividends, change in valuation and currency effects. A quantitative tool is then used to examine the quality characteristics, screening on profitability, earnings sustainability and capital allocation.
Information sharing occurs through formal daily/weekly meetings, with countries/sub-regions, stocks and macro developments covered. The portfolio managers are responsible for portfolio construction, using this array of inputs and reflecting greatest confidence in companies that rank well through the process. They are primarily interested in the “premium” and “quality” names. Stocks are sold on a change to their thesis, an earnings disappointments or valuation concerns.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
The Adviser Centre team members are some of the most experienced in the fund research industry. We can always look forward to robust and constructive discussions and we have great respect for their views and perspectives, which, given the breadth of their fund and market knowledge, come from an extremely well-informed position.
We have known and worked with the team for several years and we value their experience and the insights they provide to our own investment process. The service differentiates itself by its more focused nature and the information on their factsheets is useful in emphasising a fund’s key mandate, exposure and style biases, helping to explain the risk/return journey that our customers can expect.
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