There is no denying Asia’s potential. With fast-growing economies, strong export markets and an increasingly wealthy middle class, it’s little wonder that investors are taking notice.
Exposure to Asia Pacific should be an essential part of a diversified portfolio for long-term investors, insists Gavin Haynes, managing director of investment manager Whitechurch Securities.
“The region, driven by China and India, is undoubtedly going to be one of the key drivers of global economic growth for the next decade and beyond,” he says.
He believes there are numerous reasons why some kind of weighting to this region within your overall portfolio makes sense for investors.
“You have economies growing at a fast pace, structural reforms, better corporate governance, greater consumerism, and relative valuations,” he explains. “These all make such markets attractive on a long-term view.”
Moneywise columnist Darius McDermott, managing director of fund ratings agency FundCalibre, adds: “The demographics in most places are good, valuations are better and there are plenty of very exciting long-term opportunities.”
Asian firms are also becoming more shareholder-friendly and paying dividends, according to Patrick Connolly, a chartered financial planner with financial advisory firm Chase de Vere.
“They are in good shape and we’re seeing positive earnings growth,” he says. “Valuations are also attractive when compared with western markets.”
However, be aware that funds focused on these regions can be found spread across a number of different sectors.
For example, the Investment Association (IA) sector Asia Pacific ex Japan has £27.5 billion of assets under management. Funds must invest at least 80% of their assets in Asia Pacific equities (company shares), but exclude Japanese securities (equities and bonds).
IA Japan, meanwhile, has £24.5 billion under management, while a further £1.2 billion is in IA Japanese Smaller Companies.
Finally, there is IA Asia Pacific including Japan. This is a relatively unpopular sector, with just £700 million under management. Funds in this sector invest at least 80% of their assets in Asia Pacific equities, while the Japanese content must make up less than 80% of assets.
Mr McDermott argues that Asia ex-Japan and Japan should be considered separately by investors, largely because there are plenty of Japanese experts to run that part of the portfolio.
“Most investors think of Asia as a developing market, whereas Japan is developed,” explains Mr McDermott. “It’s also one of the world’s largest economies, so warrants specific attention.”
Quick guide: Is this approach right for me?
Consider investing in Asia Pacific if…
- You want exposure to growing parts of the world
- You are looking to diversify your portfolio
- You are willing to accept a potentially higher degree of risk
He suggests the Baillie Gifford Shin Nippon fund is worth consideration. “Shin Nippon means ‘new Japan’ and this trust focuses on emerging or disrupted sectors, where the manager sees innovative growth opportunities.”
For those wanting China exposure, he likes Fidelity China Special Situations, while a broader fund suggestion is JOHCM Asia ex-Japan.
Whichever route you choose, it’s important to be aware of the potential risks within Asia, according to Adrian Lowcock, head of personal investing at online investment platform Willis Owen.
“The region is dominated by China and the trade war with the US is having an effect and weighing on sentiment,” he says.
In addition, he points out that Asia is sensitive to rising interest rates in the US, as many Asian countries and companies have US dollar-denominated debt. If rates rise in the US, the cost of servicing that debt goes up.
Mr Connolly adds that Asian shares aren’t ridiculously cheap, which means this isn’t a market for short-term speculators.
“Our clients will typically have between 3% and 5% of their investments in Asia, with the most aggressive investors having up to 10% of their portfolio invested there,” he says.
A fund manager with a lot of experience in Asia, therefore, is crucial – as is some element of capital preservation, because volatile markets can wipe out investment values.
Mr Lowcock adds: “Investors need a clear process, with the manager understanding the markets in which their approach will – and won’t – work”.
He suggests Jupiter Asian Income and Fidelity Asia as interesting funds, while emphasising that the amounts invested in Asia will differ between investors.
“The more adventurous can have more exposure, say 10%, while a cautious investor could hold 5%,” he explains. “Income seekers can access funds with attractive yields as well as growth in that income and in the capital.”
Looking to the future, keeping a close eye on the Chinese economy will be vital, as it’s a barometer for the entire region, according to Mr Haynes at Whitechurch.
He warns: “Chinese internet stocks have also driven performance over the past couple of years and valuations are higher, which could be a concern if these businesses cannot sustain the high levels of growth.”
Fund to watch: Invesco Perpetual Asian fund
The aim of this fund is to achieve capital growth by investing in the shares of Asian and Australasian companies – excluding Japan.
Its manager, William Lam (pictured), has been at the helm for more than three years and invests in companies where share prices are undervalued.
His investment process means he focuses on unloved areas of the market in the belief that this is where such stocks can usually be found.
The fund’s current themes include Chinese internet, South Korea, and what the manager considers to be undervalued balance sheets.
Information technology is the largest sector in the fund, accounting for 32% of assets under management, followed by 23.98% in financials and 11.86% in consumer discretionary.
The other sectors, each accounting for less than 10%, include energy, industrials, materials, consumer staples, utilities, telecommunications services and real estate.
As far as countries are concerned, the fund has a 20.56% allocation to South Korea, followed by China (20.33%), Taiwan (12.57%), Australia (12.14%), and Hong Kong (11.36%).
The fund’s largest holding is Samsung Electronics.
Patrick Connolly, a chartered financial planner at advisory firm Chase de Vere, is a fan of the Invesco Perpetual Asian fund.
He says: “It has a strong and stable investment team that adopts a contrarian approach. It is a value-oriented fund, with a strong focus on domestic consumption, looking to benefit from the increasing wealth of the Asian population.”
Value of £100 invested in the fund over five years
| Year | 2013 | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|---|
| Fund percentage movement in year (%) | 5.55 | 11.34 | -2.43 | 37.91 | 36.4 |
| Value of £100 * (£) | 105.55 | 117.52 | 114.66 | 158.13 | 215.69 |
*£100 was invested on 1 January 2013. Source: Moneywise.co.uk.
| Manager | William Lam |
| Launch date | 10 February 1990 |
| Total fund size | £2.36 billion |
| Minimum initialinvestment | £500, minimum top up: £20, additional lump sum: £100 |
| Max intitial charge | 0% (Z class (i)) |
| Ongoing charge | 1.04% (Z class (i)) |
| Performance fee | None |
| Contact details for retail investors | Invescoperpetual.co.uk |
(i) Z class is only available via third party platforms and not direct.
ROB GRIFFIN writes for the Independent, Sunday Telegraph and Daily Express
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