Schroder AsiaPacific 20 October 2022

Schroder AsiaPacific (SDP) owns a portfolio of the best ideas of the broad and deep Schroders analyst team covering the fast-growing Asian region, curated by highly experienced manager Richard Sennitt. Richard draws on the detailed stock-specific work of the analysts to identify what he thinks are the best long-term growth opportunities in Asia (ex Japan). Over the years, the team have identified global leaders such as Samsung and TSMC at early stages of their development, which has helped deliver a long-term record of outperformance (see Performance).

Richard, who has 28 years’ experience working in Asian equities, and assistant manager Abbas Barkhordar, have built a portfolio tilted towards high-quality secular growth stories and companies which the team believe can generate high returns for investors over the long run. ESG concerns are integrated into the stock selection process and influence the managers’ views on the potential and risks in the business.

Over the past year Asian markets have fallen, with the winners of the recent past being amongst the worst performers. This has hurt SDP, as its focus on quality stocks has resulted in large positions in some of the region’s best long-term opportunities, which give the fund a growth bias. Richard tells us this has created opportunities for stock-picking. His focus is on the operational performance and prospects for his companies, and he has been adding on weakness to some companies that have sold off but which he thinks have strong long-term growth prospects. The trust trades on a discount of 11.8%.

We think SDP is an attractive proposition for an investor who wants to take long-term exposure to the growth potential in Asian equities. The strategy and process are built around stock selection and focussed on quality and long-term potential. This active approach increases the chances of long-term outperformance, but also brings with it the potential for underperformance when markets are driven by macroeconomic considerations or key overweight stocks fall out of favour. Both have been the case over the past year, which has contributed to SDP’s discount widening. While it may be that markets fall more before they bottom, this discount could provide a boost to returns in the long-term if investors hold on to the shares through the cycle – we note SDP has been on a low single digit discount in the past when in favour.

In terms of the immediate outlook, Richard tells us that valuations in Asia are definitely more attractive than they were a year ago, although not markedly cheaper than long-term averages. Importantly, the froth has come out of many of the most expensive areas as markets have re-rated on concerns about higher interest rates and inflation, and this has created attractive opportunities for stock-picking. Richard notes Asian economies are not seeing significant wage pressures, which may imply that looser, more supportive monetary policy is possible. Meanwhile, currencies have been more stable than in past crises thanks to stronger current account positions. While Asia would not be immune to any global recession, in our view it does look more resilient than in the past.