The £63m Old Mutual Asia Pacific fund launched in September 1994 and is managed by Ian Heslop, Mike Servent and Amadeo Alentorn.
It aims to achieve long-term capital growth through a diversified portfolio invested in Asian and Australasian stockmarkets.
The fund has roughly 155 holdings as the team believes different investment styles can work in different market environments. Mr Heslop explains: “Within our strategy we will have multiple styles and thematics working within the portfolio at the same time. This diversifies our overall stock-selection risk and stabilises the returns series we have achieved over the longer term. The investment styles we incorporate in this strategy are transient, in contrast with the more permanent, concentrated investment styles adopted by other fund managers in this region.”
The manager notes the most significant change to the investment process in recent years has been the dynamic valuation stock-selection component, which went live in March 2009.
He says: “We chose to move away from a previous, more static signal by adopting a sophisticated quality component. Using balance sheet ratios such as profitability and asset turnover, we began to rank stocks by quality. This blend of quality with valuation was intended to reduce the cyclicality of returns, as the quality criteria hedges the negative returns of valuation in a risk-off market environment.”
In terms of macroeconomic factors, the investment process draws on five fundamental, underlying stock-selection components that span different styles, including value, growth and momentum. Mr Heslop explains: “The weighting of the various components employed in stock selection is a function of market environment. Although we do not specifically make macroeconomic forecasts, we use stock-selection components to dynamically tilt the investment styles within the portfolio towards areas of the market expected to do well under current market conditions.”
The fund has a risk-reward level of six out of seven for its R Acc share class, according to the key investor information document, while ongoing charges sit at 1 per cent.
For the five years to January 13 2015, the fund has outperformed both the MSCI AC Asia Pacific excluding Japan index and the Investment Association Asia Pacific excluding Japan sector average with a return of 52.01 per cent. In addition, it has outperformed both the index and the sector average across one-, three- and 10-year time periods, according to data from FE Analytics.
Mr Heslop notes: “2014 was a challenging year for active managers in both the long-only and hedge fund space. One particular feature was the fall-off in investor sentiment seen from around June 2014. This manifested itself within our portfolio by a defensive positioning at a stock and sector level, specifically our underweight to energy and overweight to healthcare sectors during most of the year.”
The team notes positive returns were generated across most of the stock-selection characteristics of the portfolio, including the analyst sentiment signal, company management and dynamic valuation components. “The nature of our investment process means our conviction levels tend to focus on investment styles rather than individual stocks,” the manager says. “As a result, stock selection within sectors added most value to the fund in 2014, particularly through our stock picks within the financial and IT sectors.” He adds that overall sector allocation has been positive, “with a particularly positive contribution from the energy and healthcare sectors.”
Looking ahead Mr Heslop notes “elevated levels of cyclicality” across different investment styles will continue to play out within underlying equity markets this year.
“Fundamental issues such as the reduction of stimulus in the US eventually leading to higher US interest rates, prospective full-blown quantitative easing in Europe, the ongoing trend of devaluation in Japan, falling oil prices and rising geopolitical turmoil are likely to underpin more elevated levels of volatility in 2015,” he adds.
“We anticipate a rise in market volatility from its current low levels as the pace of economic recovery diverges between regions.”
EXPERT VIEW
Martin Bamford, chartered financial planner and managing director, Informed Choice
This is one of the leading funds in the sector and its process-driven approach to stock selection delivers consistent results. Ian Heslop and his team have built a well-diversified portfolio with few constraints, delivering first-quartile performance across the past one, three and five years. There is a healthy mix of exposure to developed and emerging Asia, with some UK exposure that helps with the risk management of the portfolio. The fund adopts a blended approach, with a bias towards large-cap stocks. We would recommend this fund to our clients to cover Asian equity allocations within their portfolios.
