Behind the trust: Schroder AsiaPacific Fund plc

At an index level, emerging markets tend to be more volatile than developed ones but investors looking for long-term growth ignore Asia at their peril. Far from trailing the west, many companies operating in the region are global leaders in their fields.

The case for investing in Asia remains strong, driven by a positive economic outlook, long-term growth potential from favourable demographics and a growing middle class fuelling strong domestic consumption.

There are many pitfalls to investing in Asia, however. Asian equity markets are prone to geopolitical risk and investor sentiment often drives share prices. This requires a steady hand on the tiller and the expertise to assess company fundamentals and chart a careful course towards the brightest growth prospects.

Schroders’ Asian team is exceptionally well resourced and draws on a wealth of capabilities in London and across Asia. Harnessing them to their full potential is the Schroder AsiaPacific Fund.

Testament to the team’s stock-picking abilities is the trust’s outperformance of its benchmark, the MSCI All Country Asia excluding Japan Index, since its inception in November 1995. It has also outperformed developed stock market indices, such as Britain’s FTSE 100 and Japan’s Topix, over the longer term¹.

How exactly does the team behind the trust identify companies that stand to benefit from the Asian growth story and what makes it a worthy addition to an investor’s portfolio today?

What does the trust do?

The trust principally invests in companies located in the continent of Asia excluding Japan and the Middle East. Such countries include Hong Kong, China, Singapore, Taiwan, Malaysia, South Korea, Thailand, India, the Philippines, Indonesia, Pakistan, Vietnam and Sri Lanka.

Its objective is to outperform the MSCI All Country Asia excluding Japan Index in sterling terms over the longer term.

Putting their significant experience in Asian and emerging markets towards that aim are Managers Richard Sennitt and Abbas Barkhordar. In running Schroder AsiaPacific, they manage one of the largest and most liquid funds in the peer group.

How does it do it?

The fund managers employ a bottom-up, stock-picking approach. They seek quality companies with the potential to sustainably generate returns above their cost of capital. They have an eye on valuation too and look for ‘quality growth at the right price’.

Key themes resulting from their stock-picking focus are tech leadership and innovation, the Chinese consumption and service sector, and Indian finance. Commonplace among holdings are technology hardware names, including semiconductor producers in Korea and Taiwan, as well as consumer discretionary and financial stocks, such as regional banks exposed to increasing credit penetration in markets such as India and Indonesia.

The trust benefits from Schroders’ proven Asian equity capabilities. The research-intensive process benefits greatly from a wealth of local expert knowledge and a large team of skilled professionals analysing investment opportunities both on the ground in Asia and in London.

The result is a wide range of investments, with the trust holding around 60 companies spread over multiple countries and in a range of industry sectors without any major bias towards growth or value investment styles.

Why invest?

There are many compelling reasons to invest in the Schroder AsiaPacific Fund. Here are 10 of them:

1. Growth profile

The trust seeks to offer investors an attractive way to gain exposure to the compelling long-term growth profile of Asia and the growing volume and variety of world-leading companies based there. The portfolio is positioned to benefit both from Asia’s globally-competitive exporters, as well as from domestic growth in the region driven by rising household incomes, greater credit penetration, urbanisation and growing consumer demand for products and services. The managers focus on companies benefitting from competitive positions and the ability to earn attractive returns, or those that are steering a course towards this.

2. Focus on quality

The managers seek to mitigate the risk of investing in Asia by focusing on quality companies. They favour those with sustainable earnings, robust balance sheets, efficient capital allocation and good corporate governance.

3. Buying opportunities

The trust offers exposure to attractive Asian growth opportunities but it does so with a keen eye on valuation. More difficult investment environments, where stock markets have indiscriminately sold off, can lead to buying opportunities. Ongoing shifts of sentiment and market dislocations often present attractive opportunities for the managers because of their longer-term investment horizon.

4. Strength of management

Although they only took over the strategy on 31 March 2021 following the retirement of Schroders veteran Matthew Dobbs, Sennitt and Barkhordar provide stability and experience, having spent their entire investment careers in Asian and emerging markets at Schroders. Sennitt joined Schroders in 1993 and Barkhordar in 2007. Morningstar senior investment analyst Lena Tsymbaluk points to Sennitt being an ‘experienced and proven investor’³ and the continuity provided by him working closely with Dobbs for the prior 13 years. Numis points to Barkhordar bringing more experience in asset and country allocation decisions and the team using more data to help inform decisions².

5. Information advantage

Sennitt and Barkhordar are based in London but draw upon the rich resources of Schroders’ Asia Pacific equities research team. This comprises around 37⁴ analysts based in six offices across the region, who are complemented by Schroders’ London-based global sector specialists and emerging markets team. In addition, the London-based data insights unit and ESG team bolsters the strength of these resources, which gives the managers a potential information advantage in under-researched and inefficient markets.

6. Diversification

The Schroder AsiaPacific Fund casts its net far and wide to find the brightest prospects across the region, including in markets such as India and Vietnam. The fund invests beyond just the companies in its benchmark, including in other funds, to gain exposure to the widest variety of opportunities presented by the region.

7. Active management

 The managers believe that Asian stock markets are inefficient and provide strong potential for adding value through active fund management, using a systematic and disciplined bottom-up research process. The managers aim to exploit these market inefficiencies by focussing on company fundamentals and taking a long-term view of the sustainability of a company’s returns and competitive advantages.

8. Company engagement

The quality of management is important to the approach, therefore high value is placed on regular engagement with companies – the investment team holding over 2,000 company meetings a year. Generally, the fund management duo aims to be in Asia two to three times a year, as well as regularly meeting companies in London.

9. ESG integration

In addition to fundamental financial analysis, Schroders’ proprietary sustainability tools and extensive engagement with Asian companies provide a wide range of metrics for its analysts to utilise in identifying the attractive opportunities for investment. The well-resourced central ESG team is key to understanding the wider impact of sustainability issues on the trust’s investments.

10. Competitive fees

Fees charged to investors in the trust were reduced on 1 April 2023. The ongoing charges ratio for the year ending 30 September  was 0.84%. There is no performance fee.

Find out more about the Schroder AsiaPacificFund plc >

[1] - Based on performance since inception to 31 March 2023.

[2] - Schroder AsiaPacific: Benefitting from the Asian Growth Story, Numis, 15 October 2021

[3] - Morningstar analyst research, 21 October 2021

[4] - Schroders, 2023. The 37 ex Japan analysts includes Schroders’ local specialist team of equity analysts in Sydney, as well as a joint-venture team of Indian equity analysts at Axis Asset Management (Axis AMC) in Mumbai.

Fund Risk Disclosures

The company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down, which may adversely impact the performance of the company.

Investments such as warrants, participation certificates, guaranteed bonds, etc. will expose the company to the risk of the issuer of these instruments defaulting on paying the capital back to the company

The company can be exposed to different currencies. Changes in foreign exchange rates could create losses.

Emerging markets, and especially frontier markets, generally carry greater political, legal, counterparty and operational risk.

The company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.

For latest performance information, please refer to the Company's latest factsheet.

Important information

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

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Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.