Investments  

Fund Review: Liontrust Asia Income

Aim:

These sorts of companies tend to be more defensive in nature and outperform in the times of market stress we have seen recently in Asia.

The fund aims to deliver both an income and capital returns and it has delivered strong performance in its first two years since being launched in 2012, as well as delivering a premium yield to the market of 4.6 per cent.

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PROCESS

The investment process on the fund is different from others used by Liontrust, such as Anthony Cross & Julian Fosh’s successful ‘economic advantage’ philosophy.

Co-managers Mark Williams and Carolyn Chan instead hinge their process around having a flexible investment style backed up by four key drivers, that they think means the fund can outperform when any style, be it growth or value or quality, is in favour.

The key drivers incorporate both macroeconomic views and fundamental research into companies. The managers start by identifying the key macro themes or drivers for Asian equities, in other words what will be driving returns. An example of this would be the increased size and the growing wealth of the middle classes in Asia which is leading to increased spending power.

The next stage for Mr Williams and Ms Chan is to identify which countries or sectors will be most set to benefit from these themes. The managers then do fundamental company research on the stocks thrown up by the first two steps to find the best companies to take advantage of a given driver or theme. The final step is then constructing the portfolio.

The managers tend to focus on their different areas of expertise when analysing stocks in different companies, as Ms Chan has strong expertise in South East Asia and Mr Williams has more knowledge of North Asia.

PERFORMANCE

The fund has had a strong start to life since it was launched in February 2012. It has delivered a return of 12.3 per cent compared with the IMA Asia Pacific excluding Japan sector average of 4.8 per cent, putting it in the top quartile of the sector for performance, according to FE Analytics.

The weighting in China has contributed to a “significant proportion of outperformance in the past year”, according to Mr Williams. He points out that while the Shanghai Composite index was down by 11 per cent in 2013 and the Hong Kong-based Hang Seng index was down 1.7 per cent, the Shenzen index was up by 15 per cent. Mr Williams says this is because the Shenzen index lists more modern, innovative companies, the ones driving growth in the region, rather than the state-owned enterprises that dominate the Shanghai index.

Within the Chinese market, Mr Williams highlights Chinese lottery firm Rexlot as one company that had done particularly well for the fund. Mr Williams says he bought into the company when it was trading at a very cheap valuation, but the stock still went 40 per cent lower after he bought it. He held on because he “could not find anything wrong with the company”.