This £4.8bn Asian Income offering from Newton was launched in November 2005 with an investment objective to achieve income and capital growth by investing in companies in the Asia-Pacific region excluding Japan.
Manager Jason Pidcock’s performance aim is to yield a 35 per cent premium above the FTSE All World Asia Pacific excluding Japan index on an annual basis.
Mr Pidcock has been using the same investment process since the fund’s inception and operates a fairly strict buy and sell discipline. He explains: “Every holding in the portfolio must have a prospective yield greater than that of the yield of the FTSE All World Asia Pacific excluding Japan index at the point of purchase. Any holding whose prospective yield falls below a 15 per cent discount to the index will be sold.”
It is a conviction-based equity income strategy with no country or sector constraints. The fund’s approach is based on strong fundamentals and valuations, using long-term global thematic trends as a guide. He notes: “Macro and micro factors are taken into account when constructing the portfolio. We take a view on the operating environments companies face [macro] and the positioning of that company [management ability, balance sheet strength, scale, know-how, competition and regulation] and then decide on whether the valuations are compelling.”
The resulting portfolio is what the manager calls “focused”, with typically less than 80 holdings, although he made a few changes to the portfolio towards the end of last year.
“In the last few months of 2014, we sold out of some stocks where our conviction was lowest in order to raise the cash level slightly, which we expect to run down again in the first half of 2015 as we take advantage of buying opportunities,” he says.
The ongoing charge on the sterling income shares is 1.64 per cent, with the fund sitting at the slightly riskier end of the risk-reward profile at level five out of seven.
The performance of Mr Pidcock’s fund has been stellar over the long term, having outperformed both its index and the IA Asia Pacific excluding Japan sector. Data from FE Analytics shows that in the five years to January 21 2015 the fund returned 82.56 per cent to investors, well above the 45.57 per cent return generated by the index and the sector average of 42.47 per cent. The fund also maintained top quartile across three years with a return of 32.71 per cent, compared with 27.39 per cent from the index and 25.97 by the sector.
Mr Pidcock hails the long-term performance of the fund as “excellent” and adds that since launch to December 31 2014 the fund has delivered a total return of 178 per cent.
He points out: “Historically, the fund has had a good record of outperforming in falling market periods due to its low beta. Volatility was demonstrably lower than the peer group and the index across the past nine years. The Newton Asian Income fund has achieved its total return from a combination of capital growth and income generation, with the bulk of the outperformance coming from stock selection.”
Turning to stocks that have done well for the fund, the manager notes: “The toll road sector has been very good for the fund, with solid performance from Transurban in Australia, Bangkok Expressway in Thailand and the Macquarie Korea Infrastructure Fund. We have also had successes with telecommunications, utility and property trusts.” He lists Telstra, Spark New Zealand and Advanced Info Service as telecoms holdings that have added to performance, as well as utilities stocks such as Meridian Energy, APA Group and Mighty River Power.
The portfolio’s two Macau casino operators were among the best-performing holdings in 2013, but Mr Pidcock notes last year they detracted from performance and this year he expects them to do better. “The outlook for 2015 is one of relatively low growth and moderate equity gains, but we feel the fund is well placed in a low-inflationary, low interest rate environment,” he says. “We have a high level of conviction in our holdings for the short and, in most cases, the long term.”
EXPERT VIEW
Rob Morgan, pensions and investment analyst, Charles Stanley Direct
Jason Pidcock has enjoyed huge success with this fund, both in terms of performance and raising assets. The fund’s focus on high-quality firms with established business models and high levels of cash generation means I would expect it to hold up better in a falling market. The main exception to this was the second half of 2013 when more defensive stocks were sold off. There is little exposure to China and instead the focus is on developed Asia, notably Australia. Interestingly, Mr Pidcock has increased his cash weighting to more than 7 per cent because he is cautious on valuations. Well managed and rightly a popular fund in my view.
