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Schroder Asian Alpha Plus: August 2023 update

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • The managers are hunting for what they believe are high quality growth prospects in Asia
  • Richard Sennit is an experienced investor with an extensive track record
  • They benefit from the support of a large team of analysts based across the region
  • 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 Schroder Asian Alpha Plus fund seeks to grow capital over the long-term by primarily investing in large Asian companies from countries such as China, India and Taiwan.

We think this could be a good option within the Asian portion of a globally diversified portfolio. Investments in emerging markets add risk and the associated volatility should be considered when constructing a long-term portfolio.

Manager

Richard Sennitt has been lead manager of the fund since March 2021 following the retirement of veteran investor and long-term colleague, Matthew Dobbs. Sennit joined Schroders in 1993 and has a wealth of experience investing in Asian markets.

Sennitt has managed the Schroder Asian Income Fund since 2001, as well as a few other Asian income portfolios that are run similarly. He was previously alternate manager of Asian Alpha Plus, so he knows the fund well.

Abbas Barkhordar became co-manager in 2021 when Dobbs retired. He joined Schroders in 2007, initially as an analyst on the Emerging Markets Equities team. While he has applicable analyst experience, this is Barkhordar's first fund manager role.

There are thousands of companies in this part of the market, so the managers have the help of a team of 37 analysts based across Asia. They help sift through the market and uncover what they believe to be the most promising opportunities.

Process

Sennitt and Barkhordar believe that Asian markets are a stock pickers paradise. Since they tend to be less researched than developed markets there is plenty of opportunity to uncover hidden gems. They tend to be volatile though and that’s why the managers believe the best way to navigate these risks is by investing in high quality businesses – but without paying too much for them.

To whittle down a universe of over 5,000 companies, the managers work closely with Schroders' Asian equities team to help generate research and ideas for the fund. They look for companies they think can sustain returns over the long run. They should have good cash flows, strong franchises, a quality management team, superior corporate governance standards and a strong business model that's able to defend against competition. Next, they aim to forecast the earnings of each business, which could ultimately influence the direction of the share price.

While the managers mainly focus on individual company analysis, they also consider economic factors to provide broader context to their research. This may involve looking at inflationary trends and monetary policy, amongst other factors.

This results in a portfolio of between 55-70 companies. Over half of the portfolio is invested in financials and technology stocks with significant investments in TSMC – the largest global semiconductor producer – and Samsung Electronics.

Geographically, they invest a lot less than their benchmark in China. They have concerns around the valuations in certain parts of the market and the potential rewards available. In contrast, they invest more in Hong Kong where they have found good quality ideas at more sensible valuations. India and Taiwan also form a meaningful part of the fund’s regional spread.

The managers take a long-term view when making an investment. Recently they’ve made several purchases including Singaporean bank, DBS Group and Chinese battery company, CATL. There were also a few sales too, including UOB, another Singaporean bank and Taiwanese company, Novatek Microelectronics.

Please note the managers can use derivatives which, if used, adds risk. They mainly invest in larger firms, but they also have the ability to invest in higher-risk smaller companies.

Culture

Schroders is a well-established asset manager with offices all over the world. It believes the importance of Asian and emerging markets in the global economy has increased significantly over the years and expects this to continue. We think Schroders is dedicated to investing in this part of the world and supporting the teams that invest there.

We believe incentivisation for Schroders fund managers and analysts is focused on longer-term performance potential and is therefore aligned with their investors. The Asian equities team is based across the UK and Asia, and this remains an important resource for the group’s range of Asian funds.

ESG integration

Schroders has invested significantly in environmental, social and governance (ESG) resources and tools in recent years. Each investment desk has access to a variety of data sources that have been brought together into a proprietary platform called SustainEx, which allows investment teams to quantify a company’s positive and negative contributions to society. The ESG agenda at Schroders has significant support from senior management, and in 2019, the firm completed its acquisition of impact investment specialist Blue Orchard.

All Schroders funds were required to pass the firm’s inhouse ESG accreditation process by the end of 2020. All new funds must also be ESG accredited, and investment teams must reapply for accreditation on an ongoing basis. The ESG accreditation process is managed by the Sustainability team. They sit on the investment desk and are objective in their approach. There is a set list of criteria that funds must meet to become accredited, and the process is substantial – no fund has ever gained accreditation on the first attempt. Fund managers are also expected to demonstrate improved levels of ESG integration over time.

The Schroders Sustainability team acts as a focal point for ESG, proxy voting, and engagement. When it comes to proxy voting, Schroders has structured policies in place and is transparent on the reasons proposals have been voted against. On the ESG engagement side, the firm’s activities and outcomes are monitored, tracked and reported in their quarterly Sustainable Investment reports and annual Sustainability reports. There are also a range of ESG-related insight and thought leadership articles available on the firm’s website.

Cost

This fund is available at an annual ongoing fund charge of 0.84%, which we think is good value for a fund in the Asia Pacific ex Japan sector. The HL platform fee of up to 0.45% per year also applies.

Performance

Sennitt has an extensive track record investing in Asia. He has managed the Schroder Asian Income Fund since 2001 – which is different from this fund as it aims for income and growth. A similar process is used to find investment opportunities though and the universe of companies being researched is similar.

Since being appointed lead manager of this fund in March 2021, the fund has returned -11.19%* vs -12.62% for its benchmark. This is only a short time frame to measure his success, but our analysis suggests Sennitt has added value through stock selection. However, it’s underperformed the -7.42% return for the IA Asia Pacific excluding Japan sector over the same period.

Over the past 12 months (to end of July) the fund has returned 1.43% vs 0.44% and 0.41% for the benchmark and IA sector, respectively. The team’s underweight position in China over this period helped performance as did their overweight position in information technology with Samsung Electronics among the top performers. Other key drivers were Indian financials such as HDFC and Bank Mandiri.

Patient investors have been rewarded with good long-term returns, though the fund’s investment style means it can at times be more volatile than the average fund in the IA Asia Pacific ex Japan sector. We think the fund has good long-term prospects, though there are no guarantees how the fund will perform in future.

Annual percentage growth
July 18 -
July 18
July 19 -
July 20
July 20 -
July 21
July 21 -
July 22
July 22 -
July 23
Schroder Asian Alpha Plus 5.84% 5.64% 21.44% -8.33% 1.43%
MSCI AC Asia ex Japan NR 3.87% 4.78% 12.39% -8.52% 0.44%
IA Asia Pacific ex Japan 7.57% -0.25% 18.17% -4.62% 0.41%

Past performance isn't a guide to the future. Source: *Lipper IM to 31/07/2023.

Find out more about Schroder Asian Alpha Plus including charges

View Schroder Asian Alpha Plus Key Investor Information


Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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