The past few months have not been kind to Asian equities.
Having risen rather nicely along with other world equity markets at the start of the year – helped in no small way by the over-exuberance of the Chinese A-share market – the region’s equities have lost more than 20 per cent of their value since April.
UK equities, in comparison, are down 7.5 per cent.
All in all it’s been a miserable period for the Asian asset class, but this doesn’t mean it should be written off entirely.
The question is how best to take exposure?
For many years the go-to fund in this space has been the Stewart Investors Asia Pacific Leaders vehicle.
Manager Angus Tulloch had built up a phenomenal record, and the portfolio was renowned for being less volatile than many peers, rarely losing as much money in falling markets.
But earlier this month, Stewart Investors announced a number of lead manager changes on its funds, including Asia Pacific Leaders.
Mr Tulloch is to take more of a back-seat role in the team and hand the reins to David Gait – who manages the Elite-rated Asia Pacific Sustainability fund – during the next nine months.
Of all the changes the company announced, we were most comfortable with this one as we know the new manager, but there is a question mark as to whether he can translate the sustainable investment process from his small- and mid-cap fund to an all-cap portfolio.
However, there is no need for investors to panic and sell out of the vehicle. While all the changes are rather unsettling, Stewart Investors still has a well-resourced team and Mr Gait could prove to be an excellent replacement.
But it may be worth considering alternatives for investors not already in this portfolio.
One such option is the Matthews Asia Pacific Tiger product. This is the flagship fund of San Francisco-based Asian manager Matthews, and it invests in high-quality companies for the long term.
The strategy has been running since 1994, but it has only recently become available to UK investors.
Performance of the fund, which has been managed by Sharat Shroff for the past seven years, has been neck and neck with the Stewart Investors vehicle across one and three years.
Mr Shroff’s investment philosophy is to ignore short-term macroeconomic issues, and the firm is deliberately based in the US as a way of insulating itself from the day-to-day noise of the Asian markets.
However, the team makes regular trips to the region to visit a large number of companies, including the suppliers and customers of potential stock ideas.
It has a wide range of local knowledge and members speak 13 different languages between them.
Corporate governance is an extremely important element in the process and the team spends between three and 12 months working on each new idea.
We particularly like the manager’s willingness to differ from the benchmark and his aim to invest in long-term Asian winners.
As a core Asian equity fund it is worthy of consideration at a time of upheaval.
Darius McDermott is managing director at FundCalibre
