Fund Review: Matthews Asia Pacific Tiger fund

This article is part of
Fund Review: Asia-Pacific ex Japan

Sharat Shroff is lead manager on the $454.3m (£300m) Matthews Asia Pacific Tiger fund and is joined by co-managers Richard Gao and In-Bok Song.

He explains that the aim of the fund is to deliver capital appreciation by focusing on long-term performance, while avoiding taking on any “undue risk”.

Mr Shroff elaborates: “We do that by investing in a diversified portfolio of companies that demonstrate above-average growth, accompanied by good generation of cashflow and steady-to-improving profitability.

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“The companies we invest in are also fundamentally sound, with healthy balance sheets and appropriate levels of leverage.”

The manager emphasises the importance of understanding companies from the bottom up.

“This is achieved through conducting primary fundamental research on the ground in Asia,” he says. “We look for companies that have sustainable business models, motivated management teams and respect shareholder rights. Typically, they are gaining stature and market share in their respective sectors and countries.”

“Finally, they need to be priced appropriately,” he adds. “Importantly, we don’t let benchmarks dictate thinking in terms of where we invest.”

Mr Shroff believes the Asia-Pacific market has evolved, citing increased breadth and depth when investing in the region.

He suggests: “Access to more markets in Asia, as well as fast-growing sectors present new opportunities for funds such as ours. Societies in Asia have also changed, with a greater desire from consumers for brand, quality and convenience.

“These important themes have become increasingly reflected in the composition of the fund.”

As might be expected from a fund that is composed through a bottom-up process, macroeconomic factors do not come into play too often, other than when the manager has “risk concerns”.

Potential investors in the fund may want to consider its ongoing charges that are currently 1.5 per cent on the commission-free ‘I’ Accumulation share class. It is also worth noting that the fund is at the highest end on the risk-reward spectrum at level seven.

Going back three years, the Pacific Tiger fund has clocked up steady returns, delivering 37.27 per cent to January 16 2015, against a return of 28.32 per cent by the Investment Association Asia-Pacific ex Japan sector. It has also outperformed its benchmark, the MSCI AC Asia ex Japan index, which generated a return of 31.61 per cent over the same period.

In the past 12 months to January 16, data from FE Analytics shows that performance has held up, with the fund returning 21.60 per cent to investors, compared to the sector’s 13.19 per cent and 16.85 per cent from the index.

Mr Shroff notes the portfolio’s holdings in Korea, India and Indonesia were the strongest contributors to performance in 2014. The sectors that fit into how he sees Asia developing over the long term have also performed well. The manager says companies directly benefiting from increasing consumption have made a positive contribution to performance, as have sectors such as healthcare.

But he cautions: “Some of the portfolio’s holdings in the information technology sector are facing near-term pressures from slowing growth, and that proved to be a detractor from relative performance.”