How Asian Total Return investment trust fared in Asia’s ‘year of two halves’

This investment trust aims to beat the performance of Asian markets while offering a degree of capital preservation.

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  1. Rob Morgan

The past year has been one of two halves for Asian shares.  The summer and autumn of 2018 saw the biggest peak-to-trough fall in Asian equities markets since 2015, with the benchmark MSCI Asia ex-Japan index shedding over 16% amid growing hostility between the US and China on trade. The subsequent rebound was also sharp, with the index recapturing this loss in the first four months of 2019.

Asian Total Return Trust, one of our preferred investments focused on the region and part of our Foundation Fundlist, fared relatively well during the volatility. The Trust is managed by Schroders’ Robin Parbrook and King Fuei Lee who aim to achieve market-beating performance while offering a degree of capital preservation through tactical use of derivatives. These have the effect of hedging against falling markets and reducing volatility – though it can also mean returns are lower if the managers get their timing wrong and markets continue to rise.

As we would expect there was a good degree of capital preservation during the bumpy period in 2018. The Trust’s portfolio was more resilient overall given 20-30% of market exposure was hedged, although it lagged behind in the subsequent rally. Overall the Trust was slightly ahead of the index over the past year with stock selection positive on the whole. However, exposure to hardest hit areas, notably China and the technology sector, hindered returns.

Early in 2018 the managers opted to reduce their exposure to a number of Chinese funds that had performed well the previous year. Selling out of SINA, Sunny Optical and reducing the weighting in Alibaba proved a prescient move, but the portfolio still contained exposure to China going into the downturn. More solid performance came from Australian mining giant BHP Group as well as Hong Kong’s AIA Group and Swire Properties as wells as India’s HFDC Bank.

Mr Parbrook remains sceptical of much of a let-up in US and China tensions despite Donald Trump’s sporadic hints that a deal will be completed. He suggests that it’s about something much bigger than trade, involving US perceptions around China’s intellectual property theft, cybercrime, and the way China projects its political and financial power via its One Belt One Road initiative, as well as its desire to dominate key industries via state subsidies.

He also believes the scope for China to undertake major stimulus measures is now much more limited given the nation’s pegged currency and a current account no longer in surplus. He expects the Chinese economy to continue to slow for the rest of this year as a result of the authorities’ desire to rein in excessive leverage and bring ‘shadow banking’ into the open.

Despite an overall cautious stance favouring quality and value Mr Parbrook remains positive on selective technology exposure (Taiwan Semiconductor, Hon Hai and Largan Precision) despite paring back the allocation to the sector over the past year. He believes certain larger Asian tech names offer stable high returns, strong cash flows and attractive dividend yields and investors are well compensated for the occasional volatility that strikes.

The fund also has a decent allocation to a variety of good-quality real estate companies (chiefly Swire Properties and Sun Hung Kai Properties) which Mr Parbrook admires for their low vacancy rates and steadily rising rents within a market with relatively little supply. Another area of interest to him is Indian private banks, which he believes can take market share from slower-moving incumbents for many years to come.

 

Our view

A key attraction of the trust is its ability to go some way to protect capital in weak markets. Having greater exposure when markets are cheap and gradually reducing and focussing on relative performance as markets get expensive makes sense – although in practice the timing can be difficult to achieve.

In the recent volatility the fund’s hedges have assisted performance, but exposure to harder hit areas has meant overall the Trust has only marginally outperformed its benchmark and peer group average. However, this should be seen in the context of an exceptional year 2017 when it significantly outperformed; past performance is not a guide to the future.

Given the track record, consistent investment approach and the deep resources of Schroders across Asia, the Trust remains part of our Foundation Fundlist of preferred investments across the major sectors.

Past performance table: Schroders Asian Total Return Investment Trust

Schroders ATR Trust May 2019
Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics.

 

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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