A relative unknown in the UK retail market, the £200m New Capital Asia Pacific Equity Income fund is managed by Tony Jordan from EFG Asset Management and has delivered consistent performance, outstripping both its index and the sector average across one and three years.
Launched in January 2011 the fund aims to achieve both capital appreciation as well as a high and sustainable dividend yield in the Asia Pacific ex Japan region. On the topic of the fund’s style, the manager notes: “This has as much to do with the total return as it is with the high yield. This investment approach has been an outperforming strategy over most time periods, partly due to its inherent value approach as well as the compounding effect of high dividends.”
The fund sits at a level six out of seven on its risk-reward indicator, while ongoing charges are 1.82 per cent, according to its key investor information document.
Although Mr Jordan says the team is always testing new approaches to dividend investing, the approach has remained consistent since launch.
He explains: “It is a dynamic process; it is not a buy-and-hold process. We are more interested in acquiring inexpensive stocks in that space and more prepared to rotate out of the expensive ones into inexpensive ones over time – that’s a driver of where we tend to look.
“In terms of stocks, we focus on cashflow, a decent balance sheet and a fairly sustainable business model, but we have found that not paying too much for a stock adds value almost immediately and the ability to rotate out of stocks when they become too expensive is important to our approach.”
The portfolio also remains fairly well diversified, covering most sectors and countries within the region, although the manager highlights the need to be aware of liquidity issues when investing in smaller markets. Therefore “it is unlikely they would make up more than 20 per cent of the fund”.
Although the fund is mostly about stock selection, Mr Jordan acknowledges the macro side can suggest areas for the team to look at. He says: “For example, we are expecting higher interest rates going forward and stronger growth, with the result that we have not been buyers of bond proxies such as utilities for the past 18 months and have been adding to the weightings in consumer cyclical stocks.”
Since launch the fund has delivered a return of 28.99 per cent, compared with 14.86 per cent from the MSCI AC Asia Pacific ex Japan index and the IMA Asia Pacific ex Japan sector average of 11.25 per cent, according to FE Analytics.
In addition, the portfolio has managed to repeat this outperformance across both one- and three-year periods to August 27 2014. Recent returns have slipped slightly, but they still remain just ahead of the index and sector returns.
Mr Jordan notes: “In 2014 we have been fairly similar to the index in spite of having a portfolio that has substantially different country, sector and company weightings.”
Key drivers of fund performance have been holdings in Taiwanese tech stocks such as Siliconware, and Thai financial stocks including Supalai and Krung Thai Bank. Meanwhile, detractors to performance have come in the form of its underweight position to Australia, which seems expensive to the manager and an overweight to Hong Kong and Chinese financials.
