A trio of Asian companies has begun influencing returns in a similar way to the so-called Fang stocks as consumers become more open to technological change, Schroders manager Matthew Dobbs has argued.
The US market – which has proved hard for active managers to outperform in recent years – has been dominated by Facebook, Amazon, Netflix and Google, or the Fang stocks, which made a significant contribution to market performance in 2015.
Mr Dobbs, who runs the £396m Schroder Asia Pacific investment trust as well as working on several other vehicles for the fund house, noted signs of a similar trend were emerging in the region at a time when consumers appeared open to change.
“What’s interesting is that a lot of returns in the US came from Fang stocks,” he said. “There’s a little bit of an echo to this with the ‘Bat’ stocks – Baidu, Alibaba and Tencent.”
Mr Dobbs suggested that the fortunes of these Chinese stocks – active in areas such as web services, e-commerce and online advertising – could be attributed to an openness to change among wider Asian consumers, who appear more tolerant of innovations, such as self-driving cars.
“A lot of companies in Korea have the bits they need to keep these cars on the road,” he added.
The manager also claimed some of Asia’s companies could prove resilient in times of global deflation, with exporters appearing attractive. One such firm, Taiwan Semiconductor, represented the largest holding in the Asia Pacific trust, with a 7.4 per cent weighting.
“In Asia, some companies that export have been doing rather well,” Mr Dobbs said. “We like the traditional exporters, such as IT companies, and some of the Hong Kong industrials.
“A lot of Asia’s key earners are also doing well [in deflationary pressure]. Taiwan Semiconductor is used to what it predicts as a fall in its pricing of 5 per cent per annum,” he said. “If we see some more pricing power, Asia could be a beneficiary.”
Despite fund managers normally leaning towards the mega-cap stocks in Asian markets, Mr Dobbs signalled a potential change of tack by slipping down the market cap scale as an astute manoeuvre.
“The future is smaller caps,” he said. “We have got the opportunity to find companies in Asia and don’t have to sit in the time-owned, state enterprises run by somebody waiting for his promotion.”
Other sources of concern appear to have faded, he hinted, with the manager claiming issues around China – which made up the fund’s biggest regional weighting at 22.7 per cent at the end of August – had been “parked” for now.
“It’s such a relief not to talk about China,” he said. “We have to say that, in general, it is going in the wrong direction.”
However he added: “I would say China is parked at the moment in the sense that it is digging the hole a bit deeper in terms of debt but, from a policy cycle point of view, the country will keep the show on the road.”
According to FE Analytics, the trust has returned 47 per cent over three years, compared with 33 per cent from its AIC Asia Pacific ex-Japan Equities peer group.
