Although the fund was launched back in February 1990, it was not given an income remit until 2006. The fund’s process has remained almost unchanged since then, with Mr Sennitt taking a primarily bottom-up approach.
However, his team routinely reviews their outlook for each country in the region to help inform their conviction in their holdings, although it rarely leads directly to changes in the relative size of positions. “We come up with a view on these markets, but just because I am positive on a country it doesn’t mean I buy more or less,” Mr Sennitt says. “There is no point liking a country’s prospects, but buying companies you’re not really interested in.”
One example of the manager’s preference for stockpicking over country allocation decisions is his exposure to Thailand. There have been weeks of political protests leading to a partial shutdown of the country’s capital city, Bangkok, but in spite of the tension this has caused Mr Sennitt is happy to have a higher exposure to the country than the fund’s benchmark, the MSCI AC Pacific ex Japan index. The manager says Thai companies “look good value”.
Since December 2006, the Asian Income fund has posted a 112.7 per cent gain, more than double that of its current benchmark. Since cutting Japan exposure in 2009 the fund is up 54.7 per cent versus the benchmark’s 29.5 per cent gain, according to FE Analytics.
But last year was “a tough year for Asia and for income”, Mr Sennitt admits, having seen his fund underperform its benchmark and the IMA Asia Pacific ex Japan sector in a calendar year for the first time since 2009. The Asian Income fund had ranked in the top quartile for returns in the sector in 2010, 2011 and 2012. The trigger for the sell-off was undoubtedly the emergence of ‘tapering’ as a concept in May, leading to speculation about when the US Federal Reserve would begin removing its stimulus for the US economy and subsequently raise interest rates.
Mr Sennitt says: “High-yielding stocks performed poorly post-tapering talks and that has acted as a headwind. It impacted more on highly-rated, high-yielding, low-growth stocks.” But the manager adds that the selloff in these names – typically seen as ‘defensive’ companies – was disproportionate, particularly given that interest rates are now not expected to rise until at least 2015. He says that he is “starting to find ideas in those high yield defensive names”.
“This time last year I was selling exposure to real estate investment trusts and defensive areas, and now selectively I can find value in some of these areas again,” Mr Sennitt says. “The shock for Asia was that [bond yields] moved up in the US and people’s expectations of interest rates dramatically shifted.”
One of the areas the manager has also begun moving back into after a period of weakness is energy stocks. Although Mr Sennitt retains an underweight position in direct investments in China relative to the fund’s benchmark, he says he has been “dripping money” into energy companies. China Petroleum & Chemical, also known as Sinopec, is one of the fund’s top-10 holdings, according to the January factsheet.
The manager asserts that an income style is “a good way to get access to the region” and the fund’s performance since adopting this approach appears to back this up.
EXPERT VIEW
Jon Beckett, chartered MCSI, senior reviewer and fund analyst for Chartered Institute for Securities and Investments
VERDICT
Richard Sennitt runs a predictable offering, one that may make a suitable core position in an Asia asset allocation. The team tends to position closer to the index than either Newton or Liontrust. The process has remained largely unchanged for the best part of a decade. In outright returns, Mr Sennitt may undershoot some punchier rivals on growth, but on yield he can easily go toe to toe. Ironically, I would have more interest had the strategy retained its Japan exposure.
