Schroder Asian Total Return 14 June 2023
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Schroder Asian Total Return (LON:ATR) is a unique offering in the AIC Asia Pacific sector which looks to capitalise on the long-term growth of Asia, through a portfolio of around 50 stocks. Co-managers Robin Parbrook and King Fuei Lee are benchmark agnostic when it comes to identifying their holdings and look for quality companies from across the region, including in Australasia, which have the ability to deliver strong long-term returns. This is complemented by the use of hedging strategies, which the managers will look to use to reduce specific exposures, if they feel there is a strategic or tactical opportunity, and limit downside risk to the portfolio.
While many managers have turned positive on China in recent months, Robin and King Fuei have actually increased their underweight position (see Portfolio). They believe the market is expecting too much from reopening and that share prices in those stocks set to benefit have gone too far. They also don’t believe the internet names will be the winners from this, so have stayed away. This has given the portfolio a different exposure compared to many peers in the sector.
Historically, the trust has either traded at a premium or narrow discount in contrast to the peer group, which has been at a persistent discount. 2022 saw a rare period of underperformance for the trust (see Performance) but the long-term returns remain strong and have been delivered in a risk-controlled manner. The trust has outperformed both the reference index and sector average over five years and has done so with a lower beta.
We believe ATR offers two standout features for investors. Firstly, there is the structure, which offers investors high-quality stock selection within the region, alongside the hedging strategies which should help mitigate the more excessive risk factors that Asia can often present (see Portfolio). Secondly, the trust has moved considerably underweight China as a result of the managers’ scepticism over the market reaction to the reopening of trade and structural challenges facing the market. For investors who are particularly cautious on China, this could offer a compelling opportunity.
The trust has shown it is able to deliver strong long-term returns from the high growth potential of the region by capturing the secular growth trends. This, combined with being underweight to China, sets it apart from the AIC Asia Pacific peer group. On top of this, the hedging strategies offer some volatility management, which we think is especially valuable in a region that can be volatile (see Performance). The open-ended equivalent of ATR is soft closed, meaning this is one of the few vehicles through which investors can gain access to this unique strategy.
Furthermore, ATR fell to a Discount in 2022. The trust is one of the few in the peer group that has traded at a premium over the past few years, however the current 5.7% discount in our view offers a potential opportunity.
- Managers have a strong long-term track record of delivering alpha
- Offers an approach that manages volatility from a potentially volatile region
- Trust is currently trading at a rare discount
- Trust could underperform if China continues to rally
- Trust levies a performance fee which some investors don't like, though we believe aligns incentives better between manager and shareholders
- Large technology weight is exposed to global cycle