ASI Asia Pacific Equity: February 2022 fund update

• This fund is run by a team with one of the longest records of investing in Asia
• The Asian equities investment process and team was originally set up by Hugh Young, a highly influential Asian equities investor
• We like the team’s long-term focus, but willingness to be flexible in the hunt for the best opportunities
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The ASI Asia Pacific Equity Fund aims for long-term growth by investing in a range of Asian markets, including both established and less-developed economies such as China, South Korea, Australia, and India. It could therefore provide broad exposure to the Asia Pacific region and diversify a global portfolio with a long-term view. Funds that focus on other regions, or specific countries, could be added alongside this one as part of a broader investment portfolio. The fund includes some investments in emerging markets, which adds risk.

Manager

Aberdeen Standard Investments, recently rebranded as ‘abrdn’, is home to one of the most experienced teams investing in Asian companies. Hugh Young is now Chairman of Asia Pacific at abrdn, and was instrumental in setting up the group's Asian equities strategy in the late 1980s. He no longer makes the day-to-day decisions over the construction of this fund, though he's still a part of the Asia Pacific Equities team, providing both company analysis and mentorship to the wider team. Flavia Cheong is Head of Asia Pacific Equities – she’s also an experienced investor and leads the team of five directly looking after the fund, with key input into its final construction.

A broader team of analysts and portfolio managers has been built over time, providing vital support on this fund and other Asian and emerging markets funds. Each team member contributes research and stock ideas, and we think their experience counts for a lot when it comes to investing across such a diverse range of economies.

The team is based across the globe, from Singapore and Bangkok to Hong Kong and Kuala Lumpur. This provides them excellent access to companies, and insight into what's going on across the region.

Process

The team's investment philosophy is based on 'long-term quality'. They believe most investors underestimate the sustainability of returns that many high-quality companies can make. They aim to find those that can generate long-term growth, which have been overlooked by others, and hold onto them for many years.

Companies in good financial health, run by robust and trustworthy management teams are favoured by the team. They often look for a change that could help boost profits in future, such as a new product or change in the use of technology. They sometimes invest in out-of-favour companies that can be bought at a more attractive share price.

Meeting company management is important to the team. While the world is currently a little different, they can typically do this regularly as team members are based throughout Asia. They also like to engage with companies on environmental, social and governance (ESG) issues that could lead to better outcomes for both investors and society over the long run.

The team typically favours businesses that rely on growing consumer wealth, though the fund has at least some exposure to most major sectors to keep it diversified. Importantly though, each company should be a leader within its market – for example, the business might offer a specialist product that isn't available elsewhere.

Over the past few years, the team has increased exposure to areas such as China and technology. Unlike some other funds though, this one doesn’t have as much in the large Chinese internet or more traditional real estate firms as the broader Asian market. It also has investments in companies the team thinks could benefit from longer-term themes, including other domestically focused Chinese companies and renewables.

New investments in 2021 included Sungrow Power Supply, a leading global supplier of inverters, an essential component of solar projects. The team believes it’s set to benefit from the shift towards clean energy, and that it offers a cost advantage, superior product quality and higher brand awareness than its domestic peers.

Culture

Hugh Young was one of the UK's first investors to build a franchise of Asian funds. The group has remained committed to investing in Asia ever since and we think this dedication is admirable.

Aberdeen merged with Standard Life in 2017 to become Aberdeen Standard Investments, and recently renamed as abrdn. The Asian Equities team subsequently made some small changes to their investment process, though the core of their philosophy remains intact. We're pleased to see the team has settled and encouraged they're willing to learn and keep improving what they do.

The broader team is responsible for a range of Asian and emerging markets funds. Each member provides input to the wider franchise, and they're willing to share their knowledge and experience to ensure their best ideas make it into the portfolios.

The team has always focused on companies with good corporate governance. Environmental and social issues have also become an increasingly important part of this over the years. Overall, the team’s work on ESG-related issues has grown over time, though this is not an exclusions-based fund, meaning it can invest in any sector. The team is also active in engaging with companies on ESG issues, which they believe could lead to better outcomes for both investors and society over the long run.

Cost

This fund has an ongoing annual charge of 0.92%, but we've secured HL clients an ongoing saving of 0.30%. This means you pay a net ongoing charge of 0.62% and makes the fund the lowest-cost actively managed fund available in the Asia Pacific ex Japan sector through HL. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

ASI Asia Pacific Equity has outperformed the average fund in the IA Asia Pacific ex Japan sector since launch in 1987*. We think this is impressive as not many funds have managed to achieve such a strong track record over this length of time. As always, past performance isn’t a guide to future returns.

There have been periods of weaker performance as well though and the fund didn’t perform as well as the sector average between 2013 and 2018. There's been an improvement in performance over the past few years. The team believes the enhancements made to their investment process has contributed to this. For example, team members now have more accountability for individual stock ideas. We’re pleased to see this improvement, and that there appears to be increased focus in the team.

Asian stock markets have had a tougher time over the past year, largely due to weakness in China. The fund didn’t do quite as well as the average fund in the sector either and it lost 7.75%*. This was partly due to weaker stock picking in countries such as Hong Kong (including insurance company AIA Group), South Korea (including Samsung Electronics) and India. Larger Chinese tech names such as Tencent and Alibaba also held back returns.

Over the longer term we think the team's focus on quality companies could help the fund hold up a bit better than others when markets fall, though this won’t happen all the time. This style means it might not do so well when the market races ahead. Like all funds, the value could fall as well as rise so investors could get back less than invested.

Past performance is not a guide to the future. Source: *Lipper IM to 31/01/2022.

Find out more about ASI Asia Pacific Equity fund including charges

ASI Asia Pacific Equity Key investor information