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Will Fidelity pip Schroders if Asia gets boost?; Investors seek cash landing

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Crouching tigers

Asia ex-Japan equity funds have always needed to benefit from the kindness of strangers, with the global economy, and perhaps more significantly the Chinese economy, determining both sentiment towards the asset class and the real economic performance which underpins it.

Positive demographics and the rapid embrace of technology have created, for many, a positive long-term story for Asian economies, but the picture in recent months has been more of a tangle, with China's moves in and out of lockdown overshadowing all else. Having said that, Asian equity funds have managed to outperform the global benchmark this year to date, as the chart below shows.

That means those allocators who did increase their Asia exposure in recent months will have something to crow about, and our database shows the average exposure in balanced portfolios rose from 4 per cent to 5 per cent between the end of October and now - though the relative outperformance of Asia ex-Japan equities during that period will account for much of it.

Allocations range from zero at 7IM to more than 10 per cent for Smith and Williamson, but topping the lot is City Asset Management which has deployed 12 per cent of its capital in Asia ex-Japan funds. 

As we have mentioned before, City AM pursue an "inflation plus" investment strategy so does tend to be a bit of an outlier with its positions. 

James Burns at Smith & Williamson has been concerned about inflation but positive on economic growth for some time.

The most widely held fund in the sector among the allocators is Schroder Asian Income, which is one of the most widely-held funds on the database, appearing in 12 portfolios. Indeed only one fund is held in more portfolios (you guessed it: JPMorgan US Equity Income).

The fund, which is run by Richard Sennitt, is £1.2bn in size and has returned 21 per cent over the past three years, compared with an 18 per cent sector average return. 

Next most widely held is another Schroders fund - ISF Asian Total Return, a £4.2bn strategy which is held in the portfolios of eight of the allocators on our database. For a fund which aims to mitigate losses it has, shall we say, struggled with this task over the past year.

Nipping at Schroders' heels is Fidelity, whose £1.4bn Asia Pacific Opportunities fund is held by seven DFMs while its £3.7bn Asia fund is held by six.

The economic development of Asia is a persistently fascinating topic as the region seeks to escape the middle income trap, while if China shows signs of re-opening, this sector could get a boost from allocators in the year ahead.

If that happens then perhaps the safety-first approach adopted through the Schroders funds will give way to more of an all-out growth approach, which will allow the two Fidelity funds to take them on the turn.

Broken records

Bank of America’s latest flows data report illustrates that many investors who long ago ditched greed and embraced fear are now rapidly falling into panic.

That firm’s private clients are now even selling the traditional haven of gold to dash for cash over the past month, placing $60bn (£47bn) into cash and selling out of equities and bonds.

Looking at markets, maybe it is the more prudent option with US bonds and US equities heading for their worst year in performance terms since 1920 and 1974 respectively. 

The reason for the current turmoil, says the bank, is simple. It blames the end of quantitative easing and onset of quantitative tightening and expects stagflation in Europe, persistently high inflation in the US, and deflation in Asia, a cocktail of outcomes sufficient to make even the fiercest bull blush.

Cash holdings among the DFMs on our database remain steady, at an average of 3.8 per cent - and 3.6 per cent in ESG portfolios.

We will keep our peepers on whether this starts to inch up.

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