Category Winner: Best Greater China Equity Fund - Schroder China Opportunities SGD
Inception Date: 2011-03-02
Total Net Assets (Mil) (2017-02-28): USD 80.37
Manager: Louisa Lo
M: Morningstar G: Greater China 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?
G: As a bottom-up fundamental investor that focuses on investing companies that will grow shareholder returns in the long term, we have demonstrated the ability to generate outperformance from stock selection. In 2016, positive stock selection, especially in the technology and materials sectors, was the key contributor to our outperformance. Our fundamental investment approach has also given us conviction and confidence to take contrarian moves from time to time.
In 2016, a few contrarian moves contributed positively to performance. For example, select commodities stocks (which we added in Q1 2016 in light of depressed valuations) and Chinese internet stocks (which we added on weakness during the second half of 2015) were among the leading stock contributors in 2016.
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?
G: Looking ahead, additional liquidity from the Southbound flows of the Stock Connect scheme (the programme through which investors in mainland China and Hong Kong can trade shares listed on the other market) and recovering earnings prospects in cyclical sectors (such as energy, commodities and capital goods) are positive factors that could drive markets higher.
On the negative side, the tightening of China’s property market, yuan depreciation amid capital outflows, higher interest rates, along with external political uncertainties, could potentially pose headwinds to the market.
We continue to be overweight in the consumer/service sectors including internet, tourism and education on the back of our positive long-term outlook for consumption demand in China. On the other hand, we have also added to select resources and capital goods names including machinery/heavy duty trucks in light of attractive valuations and improving demand supported by Government infrastructure projects. We also continue to be overweight select telecoms stocks given rising free cash flow generation over the next two years. We are broadly neutral in oil stocks on signs that oil prices appear to be showing signs of bottoming out. Meanwhile, we have reduced underweight positions in Chinese financials by adding to select insurance names in light of a bottoming out of the interest rate cycle as well as attractive valuations.
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?
G: We believe trade policies will likely turn more protectionist. Although Trump has labelled China as a currency manipulator, it is highly unlikely that he will implement draconian policies that will significantly deteriorate the Sino-US trade relationship. However, select products could face higher import tariffs. This would generally be negative for global trade growth and select exporters with large US exposure could face more uncertainties.
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?
G: The Fund is managed using a team approach with Louisa Lo, as the lead fund manager. Louisa, Deputy Head of Asian Equity team and Head of the Greater China team, is a veteran investor with over 23 years of investment experience, of which 20 years have been spent at Schroders.
Louisa is supported by four other Greater China fund managers and 16 Asia ex-Japan research analysts focusing on Greater China equities. As China’s financial markets continue to evolve, we would like to further expand our research resources in this space and we are looking to add 2-3 analysts in the near term.
M: Can you highlight any areas where you feel that the investment team or the investment process can be improved upon?
G: As capital markets continue to evolve, particularly in China, 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.