Schroder Asian Total Return 19 July 2022

Schroder Asian Total Return (ATR) applies a sophisticated strategy in order to allow investors to benefit from the growth opportunities in Asian companies while moderating the volatility often seen in the region’s markets. After a highly successful open-ended vehicle was soft-closed in 2010 it is the only option for new investors looking to access this strategy.

As we discuss under Performance, over the long-term the trust has delivered exactly the sort of return profile it is intended to. There has been significant alpha delivered versus the benchmark, with the trust having a tendency to perform well in falling markets. To some extent this reflects stock selection and the impact of the quality and valuation factors the managers look for. Another factor is the hedging strategy which sees the managers apply short positions in country and regional indices based on battle-tested quant models looking at economies from the top-down and companies from the bottom-up.

The strategy is the brainchild of managers Robin Parbrook and King Fuei Lee, who have worked together for over 20 years and run the strategy since 2007 (ATR launched in 2013). They draw on the work of a team of 39 analysts covering the region to identify the companies they think will generate the best absolute returns over the medium to long-term, aiming to take a longer-term view than the market. The portfolio tends to be tilted towards quality stocks where the managers believe the best long-term opportunities are. Following a poor six months for markets and for the trust the Discount has widened out considerably.

ATR has a number of attractions for the long-term investor. The track record of alpha generation is good. Meanwhile the focus on the long-term, on low turnover and on absolute returns are factors which could support alpha generation in future. Additionally, the hedging strategy should give some confidence that investors might be protected in some of the worst periods for markets. That said, the trust does have a quality / growth bias which has hurt it in recent months and offset any benefit from the hedges. If the current inflationary environment develops into a recession then short-term headwinds may remain strong.

In buying at the moment, however, investors can benefit from a rare discount which is wide relative to its history. In our view there is a better than average chance of the share price rating returning to its usual premium. In addition to the strong track record of the trust and the attractions of the strategy itself, there is technical support from the fact that the open-ended vehicle is soft-closed, which should direct any inflows to ATR’s shares. We acknowledge it may take some time for the current market environment to shift back to one conducive to the managers’ style. However, Robin and King Fuei are more optimistic than some, and think valuations of Asian markets are already attractive relative to history with the near-term outlook – over the next 12 months – looking good for positive returns. If they are right then we think the rating could recover quite swiftly.