Investment Universe, Process, Strategy and Benchmark – How does the Fund Manager invest? (ISIN: LU0048597586)The fund invests principally in equity securities quoted on stock exchanges in the Pacific Basin excluding Japan. The focus tends to be on “blue-chip” companies thus allowing a fairly high degree of liquidity to be maintained in the fund. However, the fund manager may invest in small caps if they are well managed and have promising long-term prospects. The manager is a growth-oriented investor and uses a bottom-up stock picking approach with a focus on companies with above average earnings growth relative to their sector or the market. He looks for companies with high quality management, a globally competitive edge, strong finances and positive cash flow. When investing in a company, the fund manager usually takes a one to two year view. Company visits are used to assess management’s capability, business quality, earnings quality, the long-term growth outlook and financial strategy as well as competitors, suppliers and customers of the companies held in the portfolio. After digesting the information and views from these visits, the fund manager can then determine the key drivers of a company’s earnings and share price. This approach means that the fund may deviate substantially from the benchmark index (MSCI AC Far East Free ex Japan Index) in terms of market allocation.
Performance Review 2005
Allan Liu: "In 2005 strong security selection in financials, information technology and utilities sectors helped the fund return 49.4% over the year, against the benchmark growth of 35.4%. Indonesian utilities company Perushaan Gas Negara was the single largest contributor, in addition to the strong performance by South Korean automobile firm Hyundai Motor. In fact South Korea was the biggest contributor on a country basis, where strong security selection proved rewarding. Besides Hyundai, the overweight in Shinhan Financials and Hyundai Heavy Industries bolstered performance. In Taiwan, many technology names enhanced the fund’s relative returns. Conversely, the underweight in China Mobile and an ex-benchmark exposure to Taiwan’s Far Eastone Telecom hurt performance."
Performance Review 2006
Allan Liu: "The fund outperformed its benchmark in 2006 on the back of rewarding stock selection in industrials, financials and utilities sectors. The fund returned 20.15% compared with the benchmark’s 15.3%. Within industrials, the overweight in ship builder COSCO Corporation of Singapore was among the largest contributors on the strength of growing international trade. In addition to positive section of securities in China and Hong Kong, as well as off benchmark exposure to Australia were the key contributors to the fund’s outperformance. Meanwhile, positions in certain Taiwanese hardware manufacturers detracted."
Performance Review 2007
Allan Liu: "The fund strongly outperformed its benchmark in 2007, returning 54.3% against the benchmark returns of 33.9%. Overweight exposure to the industrials sector, particularly shipbuilders such as COSCO Corporation and Korean engineering and construction companies such as Samsung Engineering performed strongly. Stock exchange operators and securities broking firms were also the key contributors to the fund’s outperformance. Conversely, stock selection in the Indonesian utilities sector detracted. In particular, the overweight in Perusahaan Gas and underweight in Indonesian coal miner Bumi Resources proved unrewarding."
Performance Review 2008
Allan Liu: "The fund underperformed its benchmark against the backdrop of highly volatile market conditions. Stock selection within industrials stocks proved unfavourable. A sharp decline in international trade resulted in dry bulk carriers such as COSCO Corporation and Yangzijiang Shipbuilding inhibiting performance. A position in Focus Media Holdings was the biggest detractor on account of concerns about a slowdown in advertising revenues. Weakened trade activity hurt holdings in Singapore Exchange and Korea Investment Holdings. In the contrary, Key overweight positions in the telecommunications sector, such as Taiwan’s Chunghwa Telecom and Malaysia’s Digi.com proved rewarding."
Performance Review 2009
Allan Liu: "Asia Pacific ex-Japan equities surged during 2009, in a reversal of trends in 2008, as massive fiscal spending, mainly in China, buoyed confidence. The fund strongly outperformed its benchmark over the year mainly driven by stock selection within the consumer discretionary and information technology sectors. Companies such as South Korean automobile component manufacturer Hyundai Mobis and automobiles, handset battery manufacturer BYD Company boosted performance. Share prices surged on the back of an increase in demand for cars in the US and China. The fund also benefited from its holdings in certain Chinese internet services providers such as Tencent and CTrip.com amid growth demand and ad revenues. However, stock selection in Korea, particularly certain insurance and consumer staples stocks detracted."
Performance Review 2010
Allan Liu: "In 2010, the fund recorded sterling absolute returns and outperformed the index. Notably, strong stock selection within the information technology (IT) sector supported relative returns. For instance, non-index holding in a Chinese language internet search company bolstered relative returns as it benefited from growth in internet advertising. Selected holdings exposed to rising consumption boosted the funds relative outperformance. The overweight stance in South Korean car manufacturers benefited from low cost structure and increasing brand awareness. Elsewhere, selected industrial holdings grew as rising trade and manufacturing activities boosted airline, shipping and machinery manufacturers.
Conversely, a holding in a Chinese automobile manufacturer eroded value as sales declined towards the end of the year, hampering gains made initially. Holdings within the financials sector also disappointed."
Performance Review 2011
Allan Liu: "In 2011, the fund underperformed the index against the background of escalated global economic uncertainty. Relative returns were hampered by a lack of exposure to Hong Kong-based utilities providers. Both these companies gained as investors sought safety in defensive names amid a rise in volatility. Stock selection within the consumer discretionary space also eroded value. For instance, an overweight stance in a Chinese travel portal hurt performance as its lacklustre earnings growth projections disappointed investors. Elsewhere, selected positions within the financials sector weighed on performance.
However, the overall contribution from the overweight stance in the IT space added value. Holdings in the telecommunications space were among the largest contributors to overall performance as risk aversion led investors to favour defensively positioned high yield names."
Performance 2012 - Year-to-Date
Allan Liu: "The fund delivered strong returns in January but underperformed its benchmark, largely owing to weakness in positions in Korean automobile names. The manager favours these stocks because of the benefits attributing to their increasing global competitiveness and brand value. Meanwhile, the exposure to ASEAN banks came under pressure as investors feared that monetary policy easing could increase the cost of funding for Thailand and Indonesia banks amid high competition for deposits. The allocation to the telecommunications sector hurt gains as investors rotated out of the sector.
Conversely, not holding certain Chinese telecommunications stocks proved advantageous. The underweight stance in Hong Kong utilities also benefited returns."
Performance since 2007
Allan Liu: "Over the five years starting 2007, the fund performed strongly and outperformed the index in cumulative terms. Except for the year 2011, the fund returns either outperformed or matched the index.
In 2007, the fund delivered a double-digit outperformance relative to its benchmark due to highly rewarding positioning and security selection in the industrials and financials space. The underweight exposure IT names further bolstered performance.
The fund delivered negative returns in 2008 but matched the index as the emergence of the global credit crisis fuelled a rise in volatility. Security selection in the telecommunications and IT space helped performance.
In 2009, the fund outperformed the index against the backdrop of a robust recovery in the equity market, mainly on account of high-conviction holdings in consumer discretionary and IT names, as well as selected materials stocks. A holding in China-based internet search provider was the single largest contributor to overall performance as strong growth in advertising revenue and increasing internet usage in China boosted earnings expectations. The stock continued to contribute in the following years, due to an expanding internet user base and strong growth in internet advertising."