Richard Sennitt joined Schroders in 1993 and has managed the successful Schroder Asian Income Fund since its 2006 inception, with a strong track record of investing in Asian markets. As well as managing Income mandates, Richard has managed funds focused on growth alongside Matthew for 13 years
Abbas, having joined Schroders as a graduate, has been at the firm for 13 years, where he has been a highly-successful member of the Emerging Markets team under Tom Wilson, initially as an EM strategist and, most recently, a Frontier Markets Specialist
The MSCI AC Asia ex Japan Index rallied strongly. South Korea was the best-performing index market, aided by strong gains from the tech sector. Indonesia, Thailand, Taiwan, the Philippines and India also finished ahead of the index. Malaysia, China and Hong Kong generated more modest gains and underperformed. In China, tensions with the US, and anti-trust moves weighed on sentiment somewhat.
The fund (NAV) posted a gain over the fourth quarter of 14.8% and outperformed the MSCI AC Asia ex Japan (NDR) index, which gained 12.2%.
Both asset allocation and, in particular, stock selection contributed positively to the fund’s relative returns.
At the regional level, stock selection was strong in South Korea, Hong Kong, Taiwan and India, while weaker in China.
Underweight exposure to China also benefited performance.
At the sector level, stock selection was strong in the information technology, financials and consumer discretionary
sectors while weak in industrials. An overweight position in information technology was also a positive factor.
Equity markets in Asia finished 2020 strongly. Regional indices made new highs on the last trading day of the year, as investors continued to focus on the potential normalisation in economic activity in 2021 as vaccines start to be rolled out in the coming months. This was despite the continued deterioration of Covid-19 case numbers in many Western countries in recent weeks and the imposition of tougher lock-downs. Optimism in markets is predicated on the scope for a sharp rebound in earnings through 2021-22 at a time when interest rates are likely to remain close to zero and central banks are expected to maintain ample liquidity to underpin the economic recovery. In recent months, we have already started to see an upturn in earnings forecasts for the broader Asian indices, which supports this more optimistic perspective.
Within this move in markets since November, we have seen a much sharper rebound in some of the stocks, sectors and countries that were lagging in earlier months – i.e. those that were perceived as ‘lockdown losers’. However, there remains a lot of uncertainty about the durability of this rotation within markets. On the one side, positive news on the effectiveness of vaccines should significantly reduce the downside risks over the next 1-2 years, and if inoculation happens rapidly through the next 6 months, then a rapid normalisation of activity could be apparent by late 2021. This would be very positive for growth as pent-up demand is released for travel, entertainment and other depressed areas of consumption and investment. Moderating this positive cyclical outlook, however, is the reality that there is still a very difficult winter ahead in many countries, with high levels of coronavirus infection and continued lockdowns that will depress demand. Large-scale government support programmes that have propped up consumption in many countries this year may also wind down in some countries as we go into 2021. The real improvements in mobility within economies, and via international travel, will not be apparent for 9-12 months, and that presupposes no hiccups along the way in pushing rapid adoption of the new vaccines. So, after the initial snapback in activity, the cyclical upswing may prove to be relatively anaemic as many of the headwinds that depressed activity and inflation in the preceding decade reassert themselves. These include heavy indebtedness, adverse demographics, technological disruption, and income inequality.
Given this uncertainty, we remain cautious about rotating portfolios too far away from the more secular growth themes in favour of the near-term cyclical recovery trade. We will be disciplined about taking profits on the more cyclical names we own, as and when they fully price in the potential medium-term recovery. Meanwhile, the uplift in e-commerce penetration and more general on-line activity and communication that we have seen across countries this year during the lockdowns seems unlikely to recede. Consumers and corporates have become dependent on the added convenience of these services, while operators continue to improve the quality and scope of their services. The technology hardware sector more generally has also been a net winner from this rapidly shifting consumer behaviour and we remain optimistic about the long-term outlook for many of the key Asian players. This is supported by several themes: the accelerating shift to 5G telecommunications in 2021; a renewed upcycle in memory pricing after the 2019-20 downturn; and the continued digitisation of so many areas of the economy, which drives demand for increased processor power, bandwidth and storage every year. With this positive backdrop, we remain heavily invested in the companies we view as long-term winners in these industries. This focus on the long-term outlook remains critical in assessing stocks, as the lower headline multiples in supposed ‘value sectors’ are often aligned with weaker franchises, which are likely to remain ‘value traps’ after any short-term rebound.
|Q1/2016 - Q4/2016||Q1/2017 -Q4/2017||Q1/2018 - Q4/2018||Q1/2019 - Q4/2019||Q1/2020 - Q4/2020|
|Net Asset Value||27.6||38.7||-11.7||15.0||29.8|
|MSCI AC Asia ex Japan (NDR)||16.1||29.4||-9.0||13.6||21.2|
The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Past performance is not a guide to future performance and may not be repeated.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.
Investors in the emerging markets and the Far East should be aware that this involves a high degree of risk and should be seen as long term in nature. Less developed markets are generally less well regulated than the UK, they may be less liquid and may have less reliable arrangements for trading and settlement of the underlying holdings.
The trust holds investments denominated in currencies other than sterling, investors should note that exchange rates may cause the value of these investments, and the income from them, to rise or fall.
The trust Invests in smaller companies that may be less liquid than in larger companies and price swings may therefore be greater than investment trusts that invest in larger companies.
The trust 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.
Investments such as warrants, participation certificates, guaranteed bonds, etc will expose the fund to the risk of the issuer of these instruments defaulting on paying the capital back to the fund.
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. Investments such as warrants, participation certificates, guaranteed bonds, etc will expose the fund to the risk of the issuer of these instruments defaulting on paying the capital back to the fund.