Schroder Asia Total Return posts very healthy returns – Schroder Asian Total Return has published results for 2020 and they are good. A net asset value total return of 33.7% was significantly ahead of the benchmark, which returned 18.7%. The company also beat its peer group, which produced an average total return of 30.9%. Returns to shareholders were 35.6%, helped by an improvement in the premium. The outperformance has continued in 2021, so far. The dividend is 7.1p, 9.2% higher than last year. This was covered by revenue of 8.46p. Revenue was boosted by £1m of special dividends and £1.3m of corporation tax on overseas income recovered from HMRC in relation to the 2007 and 2008 accounting years.
The cap on management fees is now 1.25%, down from 1.5%, and the performance fee is harder to earn.
From the manager’s report
Over the year the Company enjoyed a much better performance both in absolute returns and relative to the Reference Index than we expected (in our year end 2019 reports we were forecasting returns of 10-15% for 2020). Over 2020 the Company’s NAV rose 33.7% in total return terms, whilst the Reference Index rose 18.7% (Source: Morningstar/Schroders).
The best performing markets in Asia over the year were Shenzhen, Korea and Taiwan all of which rose over 40% in US$ terms. All three indices have two things in common – firstly a high weighting in technology companies (the perceived COVID winners) and secondly from mid-2020 onwards a high and increasing level of retail investor participation in stock market activity. ASEAN indices lagged, posting negative returns for 2020, mostly due to their make up. All are heavily weighted in property, financials, retailers (perceived COVID losers) and have minimal internet and tech exposure. However, the fact the lower income Asian countries were hit harder by the COVID-19 crisis was also a factor. Australia, India and the main Hong Kong indices all posted moderate gains of 5-15%.
Sector wise it was a hugely divergent year. Technology, internet, pharmaceutical, electric vehicle (EV) plays, and selected consumer names drove the vast bulk of market returns. Banks, property, energy, telecoms, insurance and utilities really struggled.
Looking at the Company’s attribution for the year – relative to the reference benchmark – the big contributors to performance can be broken down into four groups. These included our Taiwan technology stocks, Chinese stock selection in general (the positive of not owning banks, oil stocks, telecoms, state owned enterprises), and our Australia stocks. In the latter group we added to several oversold names at the peak of the crisis in March. The other big positive was our holding in ASEAN internet play Sea which more than quadrupled over the year. Despite gradually taking profits from mid-2020 (far too early!) this proved our most successful investment in 2020.
In general it was a good year – however we should highlight to clients we missed many of the best performing parts of the market. We had little exposure to EV plays, which hopefully clients will be aware from past reports we think are a very clear bubble. We also had no exposure to the best performing Chinese emerging internet names like Meituan, JD and Pinduoduo. We think these are interesting, well run companies but we do not understand their valuations given the competition and regulatory risks they face. We also had little exposure to Chinese A shares where we just cannot get our head around most valuations, which in general make little sense in a broader Asian context. Fortunately we got the tech space broadly speaking correct (lots of TSMC, Samsung Electronics, Mediatek, Naver, Voltronics etc.).
However, in truth the Company did well mostly because of what we did not own. We went into 2020 very cautious on banks due to fintech threats and disruption, and we have never really held much in the energy, utility, resources, cyclicals and in the telecoms space in Asia. Many of these companies are State-Owned Enterprises (SOEs) and/or have a fairly poor structural long-term outlook. All of these sectors performed poorly, as the impact of COVID and resulting changes in consumer behaviour accelerated many of the disruptive trends that we have discussed in previous reports.
ATR : Schroder Asia Total Return posts very healthy returns