Category Winner: Best Asia-Pacific Equity Fund - Schroder ISF Asian Opportunities A SGD Acc
Inception Date: 2007-02-23
Total Net Assets (Mil) (2017-02-28): USD 3,666.91
Manager: Robin Parbrook
M: Morningstar A: Asian Opportunities – Asia ex Japan Equities Team, Schroders
M: Could you highlight any major changes you made to the portfolio over the course of 2016? Were there any particular holding that drove the fund’s performance for the year?
A: We initiated positions in certain Asian developed market banks where we see them benefitting from the bottoming out of the interest rate cycle and as interest rates in the US looked set to rise in 2017. Elsewhere, we continued to add to our position in large technology companies which have shown to have strong cash flows, robust pricing power and structurally appealing long term growth potential.
M: What is your outlook for 2017 specific to the markets you cover, and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
A: In Asia, we continue to focus on technology companies in the right areas with technology leadership (vision, acoustics, semiconductors), and tread carefully in the consumption space, favouring the internet and gaming winners who are supplying the platforms and content that are set to become increasingly sophisticated and as consumers spend more time online. The move from goods to services is accelerating in Asia as the propensity for “fluff” over “stuff” nudges consumers towards a preference for intangible services over tangible goods. A transition towards mass consumption online will likely benefit some of these technology companies that have been such industry disruptors (such as e-commerce and internet names).
Meanwhile, other sectors we continue to intrinsically like are healthcare and selected branded manufacturers that are playing on lifestyle trends (cycling) or can use new technologies to materially improve and broaden their products (power tools, auto-electronics). We remain cautious on Asian banks, particularly those in North Asia (China, Korea, Taiwan) where we think significant bad debt continue to be “evergreened”.
M: Can you comment on the macro risks in the global economy, such as the change in leadership in the US, and the significant headwinds faced by emerging markets? How do these risks affect your investment decisions?
A: We still consider the macro backdrop for Asia to be very ‘mixed’, and are not making directional bets based on speculation around Trump’s policies, which seem to be sketchy and a mishmash of interventionist policies with liberalism and anti-globalisation all thrown in, and which mostly bodes poorly for global trade. It is hard to see reasons to think that “Making America Great Again” is going to be good for the global economy or global stockmarkets, and we think that temporary reflation runs the risk of producing stagflation in the US.
Longer term, structural factors causing deflationary pressures and low productivity growth remain very much in place so while we could see a cyclical pick-up in interest rates and inflation, the long-term underlying environment in which we are investing is little changed. However, as bottom-up investors with a focus on longer term fundamentals, we will continue to focus on identifying businesses that can differentiate themselves and will still be beneficiaries of structural themes including trends in demographics, innovation and disruption.
M: How is your investment team organized? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?
A: The Asia ex-Japan Equities investment team consists of over 40 experienced research and investment professionals that are based locally across the region. There has been no change to the team or structure over the past year.
M: Can you highlight any areas where you feel that the investment team or the investment process can be improved upon?
A: As capital markets continue to evolve, particularly in Asia, we are constantly assessing our investment resources and process to ensure we are well positioned to stay ahead of the curve to continue to deliver strong alpha generation for our clients and investors.
View all Morningstar Singapore Fund Awards 2017 articles here.