- Asian stock markets staged a recovery in 2016
- The team’s conservative investment approach weighed on returns
- We continue to hold the team in high regard; long-term performance remains impressive
David Gait, lead manager of the Stewart Investors Asia Pacific Leaders Fund, is a highly-experienced investor in Asian equities. He also has the support of a number of other talented portfolio managers in running this fund. We like their focus on high-quality companies with strong balance sheets 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.
In our view, the fund represents an excellent choice for exposure to the Asia Pacific region and it features on the Wealth 150+ list of our favourite funds at the lowest ongoing charge (the Vantage charge of up to 0.45% p.a. also applies). Investors should note the fund invests in emerging markets and is a relatively concentrated portfolio of 44 stocks, which increases risk.
Market and portfolio review
Following a difficult 2015, Asian and emerging stock markets staged a recovery last year. A number of positive factors contributed to this, including fears over an economic slowdown in China easing and a rebound in commodity prices aiding resource-rich countries such as Australia. UK-based investors benefited further from the strength of Asian and emerging markets currencies against sterling.
A change in investor sentiment towards the region has seen the share prices of companies in more economically-sensitive areas of the market, such as financials and resource-related sectors, outperform more defensive areas, including healthcare and consumer goods.
David Gait and his team employ a conservative investment approach. They seek quality companies with more defensive characteristics, which they believe will prove resilient throughout a variety of market conditions. This tends to lead them away from some of the more economically-sensitive companies that performed strongly in 2016.
Greater exposure to the consumer goods, telecoms and healthcare sectors also proved a headwind last year, as did stock picking in technology companies, according to our analysis. Investments in India, which delivered a positive return but lagged the broader Asian market, also held back returns. A relatively high level of cash (currently 9.6%) has also weighed on returns over a period when stock markets on the whole have risen. While the fund delivered a positive return of 18.9%* last year, it lagged the wider Asian stock market’s return of 28.7%. Please note this is not a guide to how the fund will perform in future and all investments can rise and fall in value.
|Annual Percentage Growth|
| Dec 11 -
| Dec 12 -
| Dec 13 -
| Dec 14 -
| Dec 15 -
|Stewart Investors Asia Pacific Leaders||18.4||0.4||19.1||1.3||18.9|
|FTSE AW Asia Pacific ex Japan||17.5||1.3||10.0||-3.5||28.7|
Past performance is not a guide to the future. Source: *Lipper IM to 30/12/2016
The fund performed in a way we would expect, however. The team’s cautious approach means we anticipate the fund to underperform a rapidly rising market, but hold up better during times of market weakness. The fund has also tended to be considerably less volatile than its peers and the approach has delivered exceptional long-term returns , although this should not be seen as a guide to future performance.
As long-term investors, few changes have been made to the portfolio over the past year, although new investments include Indian IT company Wipro and Nippon Paint, a Japanese business that derives a large portion of its revenues from one of China’s leading decorative paint companies. The team became less positive in their outlook for Singaporean banks due to some of their lending policies and an investment in DBS Group was sold.