The £57m Liontrust Asia Income fund has been managed by Mark Williams and Carolyn Chan since its launch in March 2012.
It aims to outperform the equity markets of Asia, excluding Japan, by targeting “the better managed companies that pay dividends to shareholders – effectively targeting those companies that tend to target returns on capital”, explains Mr Williams. The portfolio aims to provide a yield 10 per cent above that of the Asia-Pacific excluding Japan equity markets.
Mr Williams explains there are four main stages to the investment process: Identifying the key drivers for Asian equities; putting these drivers into a framework to pinpoint the likely beneficiaries and losers of these drivers and to identify appropriate valuation methods; fundamental stock analysis to pinpoint individual companies that will benefit the most from the drivers; and portfolio construction.
“The process is iterative, in that the information gleaned from management and corporate analysis is as important to the framework as it is to the final stock selection. Portfolio construction consists of picking the most attractive stocks, while diversifying as much risk as possible through a range of drivers and stocks,” he explains.
The team pinpoints key drivers of the market, which will tend to be longer term and unconstrained, “enabling us to reflect ideas where we have the greatest conviction”. They will tend to cover global, structural, sector and regional themes.
He adds: “As part of this process, we include identification of what we believe to be the most appropriate valuation methodology at any stage of the cycle; size bias; style – although we tend to be a blend of growth and value owing to our longer-term positive outlook for Asian equities; general macro calls; and cross-sectoral themes.”
But Mr Williams points out: “We do not automatically invest in stocks that will profit from one of the key drivers we have identified. In general, companies must have a high likelihood of providing higher yields than the region’s average over the next six to 12 months.”
In the company analysis, the team consider factors such as earnings drivers, the consensus view and catalysts for each business and the industries and countries they are in. “An additional bias will be towards companies with high prospective dividend yields supported by strong free cashflows, at appropriate valuations.”
The portfolio holds between 50 and 70 positions, with the fund sitting at a slightly higher risk level of six out of seven, according to its key investor information document, while the ongoing charge of the A share class is 1.31 per cent.
Since launch on March 5, 2012 to March 4, 2016 the fund’s R share class has delivered a return of 18.8 per cent compared with the IA Asia Pacific ex Japan sector average of 13.3 per cent, according to FE Analytics data.
Mr Williams notes: “Since launch, both stock selection and asset allocation have generated positive returns for the portfolio, although the stock selection has dominated. Areas that have benefited are China, Thailand, South Korea and Singapore. At a stock level, the biggest positives are Pacific Textiles, Minth, China Communications Construction, Sunlight Real Estate Investment Trust and Giant Interactive. Seven of the top 10 are Chinese.”
| VERDICT - Richard Philbin, chief investment officer, Harwood Multi-Manager |
| Managed by Mark Williams, this broadly diversified portfolio of almost 60 stocks has an enticing yield of more than 5.75 per cent and a quarterly dividend payment schedule. Although performance has lagged the peer group in both 2014 and 2015, the fund has delivered above-average returns since inception. The fund has a large exposure to China and the largest 10 holdings account for about 27 per cent of the assets under management. |
The manager acknowledges macroeconomic factors are important. For example, he says: “We would not have 43 per cent of our portfolio invested in Chinese equities if we believed a Chinese financial crisis is about to take place. If we are wrong, then no Chinese equities will perform well and we would be better off elsewhere. No individual stock would be unscathed in that environment.”
Despite China’s deceleration, Mr Williams believes there is still the type of growth that will support companies in certain sectors. He adds: “With China attempting a difficult transition, stock selection will be very important as certain parts of the economy will struggle – and some will go bankrupt – over the next 12 months.”
