Schroder AsiaPacific bet against China pays off – Schroder AsiaPacific produced a total return of 14.6% for the year ended 30 September 2021, outperforming the benchmark’s total return of 9.7%, while the share price produced a positive total return of 15.0%. The dividend rises by 21.3% to 9.7p.
Richard Sennitt and Abbas Barkhordar took responsibility for the management of the portfolio on 1 April 2021. The board agreed a fee cut with the manager, and with effect from 1 April 2021, the management fee decreased to 0.75% per annum on the first £600m of net assets and 0.70% per annum on the balance.
Extract from the managers’ report
“Our significant underweight to China, as well as our positions in India and Singapore contributed positively to relative performance, for the reasons outlined above. In both markets we increased our weights through the period, moving from an underweight to overweight in India and an increasing overweight allocation to Singapore. The portfolio also benefited from positive stock selection in Singapore and Korea. In Singapore, our portfolio profited from a significant overweight position in SEA, a regional e-commerce and mobile gaming company. In Korea, our overweight holdings in Samsung Electronics and battery manufacturer Samsung SDI contributed positively. Several of the Company’s non-index holdings, for example semiconductor equipment manufacturer ASML and our exposure to Vietnam, also performed strongly in the year.
Stock selection in China was negative, as some of our holdings in the internet, gaming and education sectors came under pressure as a result of the tougher regulatory environment. Not owning some of the more thematic areas of the market such as in electric vehicles and biotech where we felt valuations were excessive also detracted. However, this was more than offset by our large underweight to China in aggregate, as well as our positive stock selection in Hong Kong.
From a sector perspective, the most significant contribution was from information technology, where we saw positive value added from both our overweight allocation and our stock selection within that sector.
The geographic exposure in the Company’s portfolio continues to be mainly spread between China, Korea, Taiwan, India and Hong Kong. China remains a substantial underweight but is, in part, offset by the overweight to Hong Kong.
During the period the underweight to China increased as we reduced exposure to a number of our holdings in companies facing higher regulatory uncertainty. In our view, the higher uncertainty over the outlook for returns under the new policy environment outweighs the lower valuations now seen in many of those companies most affected. Furthermore, concerns over increased regulation as well as ongoing restrictions on travel due to COVID-19 led us to sell our Macau gaming exposure.
Other moves over the period have tended to take advantage of the increased valuation spread that we saw through last year, reducing those stocks that performed particularly strongly and looked more fully valued in favour of those names that had lagged and looked more attractive from a valuation perspective. This involved adding to financials, including in some of the South East Asian markets such as Thailand, Singapore and Indonesia. During the first half of the period we also added to India, which had been under pressure for much of 2020, as it started to look relatively more attractive, whilst taking profits on some of the more growth-orientated names in North Asia that had done particularly well including some of the information technology names. However, the information technology sector saw increased volatility during the latter part of the period, in part due to ongoing COVID-19 disruptions and concerns around the sustainability of work from home demand looking into next year. This did provide some opportunity to add back to attractive names in the sector, which remains the biggest sectoral exposure in the fund. With India performing very strongly, valuations in some areas now look extended and have led to us to taking some profits. Although the long term growth drivers for India still look very attractive, in the short term the market does look more frothy as evidenced by the increasing numbers of IPOs and foreign inflows which have in part been driven by the increased concerns around investing in China.”
SDP : Schroder AsiaPacific bet against China pays off