InvestmentsSep 28 2015

Fund Review: Baring Asean Frontiers fund

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He notes the fund’s objective is to achieve long-term capital growth by investing in firms that he believes will benefit from the economic growth and development of the region.

Mr Lim explains the equity investment teams share the philosophy of quality growth at a reasonable price (Garp). “We believe that long-term earnings growth is the driver of stockmarket performance, and that the best way of finding unrecognised growth is to identify quality companies with visibility of earnings across three to five years,” he says.

Firms with well-established business franchises, proven management and strong balance sheets generally curry favour with the manager. “We regard these companies as higher quality as they provide transparency and stability of earnings and share prices, thereby reducing portfolio volatility and making it possible to forecast long-term earnings growth more accurately,” he notes.

“Our analysts are tasked with identifying high-conviction opportunities. We have incorporated a more focused and in-depth approach to evaluating and scoring firms by introducing a company scorecard to structure and streamline the process, placing greater emphasis on each company’s franchise, balance sheet strength, valuation and quality of management.”

As a bottom-up investor, the focus is on the prospects for individual companies, with country and sector weightings decided as a result of that. Mr Lim says: “In the past 12 months, we have increased the active share of the portfolio to reflect our conviction levels as part of our process enhancement. This was achieved through reducing the number of small holdings, as well as big benchmark names whose growth or quality were less attractive.”

Unsurprisingly, for a fund that invests in equities in the Asean region, it sits at the riskier end of the risk-reward spectrum at level six out of seven, while the ongoing charges for the clean I-accumulation share class are 1.34 per cent.

Mr Lim admits that the Asean region has performed “poorly” this year due to a combination of external and domestic factors. “The fund delivered negative returns given the challenging environment,” he points out. “However, performance was ahead of the benchmark due to strong stock selection across most markets, particularly Thailand, Malaysia and Singapore. Our exposure to frontier markets such as Pakistan and Vietnam also helped.”

FE Analytics shows that in the 12 months to September 17 the fund lost 15.4 per cent, while the MSCI South East Asia index fell 18.2 per cent in the period. Across five years the vehicle’s performance is in line with its benchmark, with Mr Lim delivering 3.5 per cent against the index’s gain of 3.1 per cent.

“Asean hospital stocks have done well generally given their defensive growth characteristics, notwithstanding high valuations,” he says. “Specifically, our holdings in Indonesian private hospital operator Mitra Keluarga delivered strong absolute returns.

“Thai contractors/infrastructure also did well for the fund as investors believed infrastructure spending was the easiest way for the Thai military government to stimulate the economy. One of our holdings, Unique Engineering, was a solid contributor to performance.” Other performance highlights include consumer names in the Philippines, where the economy remains “resilient”.

Mr Lim identifies Indonesian contractors and infrastructure as names that have disappointed more recently. He says: “The government’s execution on infrastructure was poor and affected the order book wins for the companies.” The manager also cites Indonesian property where “again, poor policy communication led to uncertainty and dampened near-term demand”.

In spite of this, he is finding compelling valuations in the region. “The current tough economic environment has opened up opportunities to accumulate quality Garp stocks,” he adds.

EXPERT VIEW

Ben Willis, head of research and investment manager, Whitechurch Securities

This is a higher-risk play on Asia-Pacific equities, and the volatility and performance of the fund in recent years reflects that. If you are looking for exposure to the region, in reality it is unlikely that this portfolio will represent your core exposure. However, if you favour the region for the long term, the vehicle can be used as a complementary, satellite holding in tandem with a core fund. Given recent sentiment-driven markets, this product should be viewed as a long-term hold.