Schroder Asian Alpha Plus: July 2022 fund update

• This fund offers a way to access long-term growth potential from across the Asia Pacific region
• Richard Sennitt and Abbas Barkhordar took over the fund’s management at the end of March 2021
• They have the support of a robust team of analysts based across the region to sift through the market and uncover some of the most exciting 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 Schroder Asian Alpha Plus fund aims to provide growth by investing in larger companies across Asia, based in countries such as Hong Kong, India, and Taiwan. It could fit an investment portfolio that may suit exposure to a more adventurous fund, which includes higher-risk emerging markets, in the pursuit of long-term growth. The fund could be used as part of a globally diversified portfolio and/or one seeking exposure to Asian markets.

Manager

Matthew Dobbs stepped down as manager of this fund on 31 March 2021. His long-term colleague Richard Sennitt took over as lead manager, with support from co-manager Abbas Barkhordar.

Like Dobbs, Sennitt is another veteran Asian fund manager. He joined Schroders in 1994 and has since focused on Far Eastern markets. He worked closely with Dobbs from 2007 and helped to build Schroders' Asian equities capabilities based in London, along with its range of Asian and smaller companies funds.

Sennitt was previously alternate manager of Asian Alpha Plus, so he knows the fund well. He has also managed the Schroder Asian Income Fund since 2006, as well as a few other Asian income portfolios that are run similarly. In addition to taking over Asian Alpha Plus, he also assumed responsibility for the Schroder Asia Pacific Fund, an investment trust previously managed by Dobbs. Sennitt handed over some of his existing responsibilities to other team members, to free up some of his time to focus on these portfolios.

Barkhordar joined Schroders in 2007 and was an analyst on the Emerging Markets Equities team. While he has applicable analyst experience, this is Barkhordar's first fund manager role. He also has a background in broader economic analysis.

There are thousands of companies in this part of the market, so the managers have the help of a team of 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 aim to spot Asian companies with exciting potential before they're noticed by other investors. They believe they're able to do this thanks to the in-depth analysis carried out by their well-resourced investment team.

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. Importantly, the managers will only invest if a company's shares can be bought at a price that doesn't yet reflect its longer-term earnings potential. They mainly invest in larger firms, but they also have the ability to invest in higher-risk smaller companies.

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, monetary policy, and employment trends, amongst other factors.

The managers tend to invest more in growth-focused companies but will also invest in value-orientated companies depending on the opportunities available. This could include businesses or sectors that are more sensitive to changes in the economy, or those whose share prices look “cheap” compared with their growth potential.

For example, towards the end of 2020, the managers reduced exposure to growth-focused holdings and added to the real estate and financial sectors. More recently, the managers have tilted back slightly more towards growth, following a weaker period for this style and the opportunity to invest at more attractive share prices.

In terms of countries, around 20% of the fund is invested in China, which compares with almost 40% for the fund’s benchmark. The managers are mindful of the political and economic challenges faced by the country, and the headwinds caused by its zero-Covid policy. This could cause issues in terms of logistics, dampen consumption, and more broadly make life less certain for businesses. That said, the managers have recently added to some investments in China following a weaker period of performance for its market this year. This lower exposure to China is also offset to a degree by investing more in Hong Kong than the benchmark (14.5% vs 7.8%).

Please note the managers can use derivatives which, if used, add risk.

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 ESG (environmental, social and governance) resources in recent years. Each investment desk has access to a variety of data sources that have been brought together into a proprietary platform that allows investment teams to analyse a company’s performance on several ESG measures.

ESG issues have always formed part of the Asian team’s company analysis as they believe they impact the earnings sustainability of a company. Good corporate governance has always been key to the process, while the importance of environmental and social factors has also increased in recent years. The managers also engage with companies on how they can improve on sustainability issues.

The team uses the group’s proprietary CONTEXT framework. This considers various stakeholders, where risks lie, and how this could impact the business, and analysts score each company on an ESG basis. While the fund integrates ESG analysis, it’s not exclusions based. This means the managers are prepared to invest in any sector providing they fully understand the risks around it. For example, will ESG risks impact company earnings? The greater the potential for ESG risks, the less likely the managers will invest in a company or hold a larger position. They hope the overall result is a portfolio of higher-quality companies.

Cost

This fund is available at an annual ongoing fund charge of 0.84%, which we think is reasonable 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

Richard Sennitt has an extensive track record investing in Asia. He has managed the Schroder Asian Income Fund since 2001 – this fund is different from Asian Alpha Plus as it aims for income and growth, though a similar investment process is used to find investment opportunities. As always, past performance is not a guide to future returns.

Asian stock markets have faced a tougher time over the past year, partly as China has faced headwinds due to its Covid-induced lockdowns. Over this time, the Asian Alpha Plus fund has done less well than its peers. While the fund takes a relatively flexible approach, it’s generally tilted more towards growth investing. However, rising interest rates and inflation have held back this style so far this year, as they reduce the value of future cashflows. This has dampened the fund’s performance.

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.

Past performance isn't a guide to the future. Source: Lipper IM to 30/06/2022.

Find out more about Schroder Asian Alpha Plus including charges

View Schroder Asian Alpha Plus Key Investor Information