This time last year I was getting calls asking me if time was up for Stewart Investors Asia Pacific Leaders.
After a change of manager in 2015, when Angus Tulloch retired, 2017 had proved a disappointing year in terms of performance for incumbent manager David Gait: the fund returned 10 per cent less than the index and peer group (the fund sits in the IA Specialist sector but we have used the IA Asia Pacific ex Japan sector for comparison purposes) over the 12 months, according to FE Analytics, and outflows had been substantial.
But, as I explained at the time, the fund was performing exactly as you would expect in the prevailing market conditions. It had been left in a safe pair of hands.
Mr Gait had been co-manager on the fund for some time before Mr Tulloch left, and a member of the Asia Pacific equities team for 20 years.
His investment philosophy and process was the same and the reason for the underperformance was simple: it was structurally underweight China and the tech stocks that had been rallying so strongly.
This is not a fund that shoots the lights out in a strongly rising market. It invests in quality companies that treat minority shareholders, employees and customers well. Corporate governance is critical.
The macroeconomic environment is largely ignored and there is no requirement to own a sector or country if there are no good investment opportunities.
Company meetings and assessing company management are a critical part of their process. Mr Gait – and co-manager Sashi Reddi – look for companies with integrity, humility, sustainability, risk awareness and emotional engagement from management.
Speculative businesses are avoided and they focus solely on delivering the best outcomes for clients. Capital preservation is at the heart of their process.
And it is this last aspect – capital preservation – that I really want to highlight. While the fund won't keep up in a strong rally, it has shown itself to be resilient in down markets. Indeed, much of the long-term returns are made when markets fall.
This year is a case in point. As trade wars, a strong US dollar and political uncertainty have weighed on sentiment, the MSCI Asia Pacific ex Japan index has fallen 9.11 per cent year to date, total returns in sterling data from FE Analytics shows.
The IA Asia Pacific ex Japan sector has fallen 10.44 per cent. Stewart Investors Asia Pacific Leaders is down just 0.79 per cent over the same period.
And this isn't a one-off. In 2015, when the Chinese A share market bubble burst causing Asian stocks to fall, the sector and index were down 3.35 per cent and 4.12 per cent respectively, while the fund was up 1.94 per cent, data from FE Analytics, total returns in sterling, calendar year 2015 shows.