Invesco Asian – fund update

Exposure to Korean stocks has held back the recent performance of this popular Asian fund.

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  1. Rob Morgan

It’s been a bumpy ride for investors in Asian markets over the past year. Buffeted by concerns of trade wars between the US and China things could remain volatile in the shorter term. Yet we believe the longer term outlook for growth is encouraging.  There is increased domestic consumption, a high level of corporate innovation and ever more companies competing on a global scale. 

While there’s lots of growth potential on offer in Asia, there is also risk. The major economies China and India are still developing and going through major changes. At a company level governance standards are typically lower.

One of our preferred funds for more investing specialising in the region is Invesco Asian. Manager, William Lam, takes a contrarian approach aiming to back companies whose share price is temporarily depressed due to investors’ overreactions to bad news. This is not an out-and-out ‘value’ fund, however, and Mr Lam will buy more expensive growth-orientated stocks at what he believes are opportune times.

The result is a well-rounded fund that we believe is worth considering as a core portfolio holding in the area. The manager emphasises the importance of liquidity (ease of trading in and out of shares), positive cash flow, sound balance sheets, stability of market position and quality and openness of management. The process is pragmatic and flexible, aiming to respond appropriately to a range of different economic and market conditions. Therefore, no particular investment ‘style’ should be expected to dominate the portfolio for extended periods.

Over the longer term the fund has been a strong performer, although the past year has been more challenging. For some time the fund has held a significant amount (currently around 20%) in South Korean stocks such as top holding Samsung and Korea Electric Power. Korean pop music might be all the rage but the stock market certainly isn’t. It’s been held back by the U.S.-China trade conflict given the economically-sensitive nature of its economy, but Mr Lam believes it offers particularly good value to investors. So far this hasn’t worked and the stance has been detrimental to performance.

Although a slow-moving trend, Mr Lam expects Korean stocks to gradually benefit from corporate culture reform and improved governance.  The manager feels the ‘Korea discount’ being reflected in current low valuations is significant and suggests little potential for improvement. He believes this means that even a small signal of change could help trigger a reassessment from investors and boost shares.

The second largest country weighting is to China. At the start of 2019 Mr Lam doubled the fund’s position in Chinese internet stock Tencent following a period of weakness, though he is now trimming that as it has rebounded and is approaching his estimate of fair value. However, he considers China to still offer some decent opportunities amid the current trade war concerns, especially companies expected to benefit from rising consumer spending. Although the fund is less tech-orientated that it has been, two of China’s e-commerce and gaming giants, JD.com and Netease, remain in the top ten.

Past performance table: Invesco Asian Fund


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.

Our view

Invesco Asian applies a disciplined but flexible process and has a broad and experienced team. Although we had some minor concerns over the retirement of previous lead manager and team head Stuart Parks earlier this year, William Lam has been co-manager on the strategy since April 2015 and has gradually taken on more responsibility and influence. The fund offers a sensible, core holding for investors seeking broad Asian exposure and it remains part of our Foundation Fundlist of preferred investments across the major sectors.

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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