Schroder Asia Pacific (SDP) offers access to a portfolio of high quality Asian companies selected for their long-term growth potential. The manager, Matthew Dobbs, tells us he is focused on finding the highest quality companies, in terms of both financials and corporate governance. He has constructed a portfolio of the most attractive stocks, bought when he thinks they are being undervalued by the market, with a long-term view and little attention paid to short-term market movements.
As we discuss in the Performance section, the trust has an outstanding long-term track record, generating the best NAV total returns in the AIC Asia Pacific sector over ten years and top- quartile returns over five years. This has been driven by stock selection rather than country or sector positioning, in line with the manager’s intentions. SDP’s share trade on a 14% discount, having widened substantially after the coronavirus pandemic started to spread. The board views 10% as a target level, however it takes into consideration market conditions and the discounts of peers.
Many of Matthew’s most successful stock picks have been in the new economy sectors of information technology and consumer discretionary. Although he is a thirty-year veteran of the market, Matthew has been early to latch on to some of the biggest winners in the market such as Tencent and Alibaba. As well as to his own judgement, this is testament to the benefit of having a team of almost forty analysts spread across six countries in Asia, working with local knowledge and with their ears to the ground of a rapidly changing continent.
Schroder Asia Pacific is an excellent core holding for investors who want exposure to the exciting growth potential in Asia. The current 14% discount represents a great entry point for the long term, we think, even if in the short term the pandemic might lead to some rocky periods for markets. We note that at the time of writing, China is easing restrictions on economic activity, indicating they may be over the worst of the crisis already.
While Alibaba and Tencent have become staples in most regional portfolios, not all managers had the foresight to buy into them in 2013 and 2014 when emerging markets were in the doldrums and the businesses at early stages. We think this is testament to the strength of the analyst team and the long-term view taken in the stock selection process.
Matthew’s thirty-year experience is a key advantage for shareholders. His career has coincided with the rapid development of countries like China, meaning he has seen the paths that successful countries travel and that others are trying to follow. He has also seen numerous crises and how companies have reacted and adapted.
In our view, given the volatility in Asian emerging markets, of which the coronavirus is just the latest example, a stock-picking strategy is essential. Over the long run, however, high quality companies should generate strong growth from the secular changes in Asia, and we think SDP is well positioned to continue to find them.
|One of the most experienced active fund managers in the market supported by an extensive local analyst team||The discount is narrower than its long-run average|
|Strong long-term performance record thanks to successful stock-picking||There is no board commitment to maintain or grow the dividend|
|Prudently managed, with quality criteria used for stock selection and modest levels of gearing||The coronavirus pandemic could lead to losses in the short term|