- The fund remains focused on companies with robust finances run by quality management teams
- A lack of exposure to Chinese technology companies held back performance last year, but we remain positive on the long-term prospects
- The fund recently moved from the IA Asia Pacific ex Japan to the IA Specialist sector
David Gait and the team behind the Stewart Investors Asia Pacific Leaders Fund have adopted the same tried-and-tested investment process for many years.
They seek high-quality companies with financial strength and robust cash flows, run by trustworthy management teams. They only invest when they feel share prices are lower than a company’s true worth and with the intention of becoming long-term shareholders. We like this approach and the team’s willingness to stick to it through thick and thin.
A focus on companies with more sustainable growth prospects means we expect the fund to hold up well in weaker markets. That said, it may lag the performance of the broader Asian stock market when share prices rise rapidly. This has been the case over the past couple of years, but it’s an approach that has proven successful over the long run. Investors are reminded past performance is not a guide to future returns.
We continue to rate the Asian equities team at Stewart Investors highly and believe this fund remains a top choice for investors who want exposure to the region. The fund features on the Wealth 150+ list of our favourite funds across the major sectors.
Asian and emerging countries were home to some of the world’s best-performing stock markets in 2017. The share prices of technology companies drove much of these returns and a number of larger Chinese internet businesses, such as Tencent and Alibaba, grew particularly strongly.
Many of these companies are not held in the fund as they do not meet the strict quality criteria or high levels of corporate governance that David Gait and his team seek in a company. They prefer to focus on businesses they believe have more sustainable growth prospects.
The fund grew 13.4%* last year, but missed out on some of the gains made in the technology sector and underperformed the Asian stock market. Over the longer term the team has demonstrated an ability to identify some of the region’s strongest-performing companies and we expect them to deliver good long-term results. There are no guarantees, however, and past performance is not a guide to future returns. The fund also invests in emerging markets, which increases risk.
|Annual percentage growth|
| Dec 2012 -
| Dec 2013 -
| Dec 2014 -
| Dec 2015 -
| Dec 2016 -
|Stewart Investors Asia Pacific Leaders||1.0%||19.8%||1.9%||19.6%||13.4%|
|FTSE AW Asia Pacific ex Japan||1.3%||10.0%||-3.5%||28.7%||23.4%|
Past performance is not a guide to the future. Source: Lipper IM* to 31/12/2017
Recent new investments include Uni-President Enterprises, a food and beverage company based in Taiwan. The company is focused on building long-term brands in China and is in the process of developing healthier, premium products that could boost profits. It also has a quality and respected management team at the helm, which David Gait views as vital when it comes to investing in Asian companies.
Change to investment sector
The fund recently moved from the IA Asia Pacific ex Japan to the IA Specialist sector. This is because the team have found an increasing number of high-quality companies with excellent growth prospects that are located outside of the Asia Pacific region, but still carry out most of their business within Asia.
For example, the fund’s exposure to Japanese companies has increased (currently 5.5% of the portfolio). Current investments include Nippon Paint, which is the number one paint company in China. In future the majority of the company’s sales are expected to come from China and other Asian countries, which is why the management team are happy to invest in the company.
Going forwards we expect the majority of the fund to remain invested in companies located in Asia (excluding Japan). We are confident those based elsewhere will only be held if they generate a large portion of their sales from Asia and are positioned to benefit from the region’s long-term growth potential. We are also encouraged the team’s existing investment process and philosophy remains intact.
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