Commentary - Private Investor

"You can’t dine off relative returns, and in Asia we believe the benchmark indices are a poor reflection of the overall investment opportunities. The priority of the Company is to make money, whilst providing an element of capital preservation in a volatile asset class."

Robin Parbrook & King Fuei Lee

Co-Managers of the Schroder Asian Total Return Investment plc

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Q1 2019 Commentary

Market summary

Asian equity markets have started 2019 in a buoyant mood as markets rebounded on growing optimism of a conciliatory outcome from trade talks between the US and China following months of escalating trade tension. The dovish shift by major central banks and the more pro-growth stance of the Chinese government also boosted sentiment.

Investment outlook

Against this backdrop and despite the hedges we have, the portfolio posted strong gains over the quarter, and outperformed the reference index. From an absolute return perspective, our holdings in Hong Kong and China led the gains. Internet names such as Alibaba and Tencent bounced back strongly as sentiment over China’s economic outlook improved given recent policy stimulus to spur growth. Alibaba also saw a reacceleration of its core ecommerce business, while Tencent’s gaming revenue outlook improved on expectation that several hit games will come out later this year. The shift to a more pro-growth policy stance in China also benefited consumption-related holdings such as budget hotel chain operator Huazhu Group and white-goods producer Midea.

Quarterly overview

In Hong Kong, our holdings in select quality real estate names (Swire Properties, Sun Hung Kai Properties) did well as the US Fed turned increasingly dovish following subdued inflation data in recent months. This has significantly lowered market expectations for future rate hikes, and therefore supported our properties names in general. Leading power tool producer Techtronic was another key contributor which rallied on renewed optimism over potential positive outcomes from trade talks between the US and China given its significant exposure to the US market.

Conversely, the moderating US interest rate expectations have weighed on our bank holdings in Hong Kong and Singapore (HSBC, OCBC). Our hedges also offset some performance in a rising market.

Discrete yearly performance (%)

	Q1/2018 - Q1/2019	Q1/2017 - Q1/2018	Q1/2016 - Q1/2017	Q1/2015 - Q1/2016	Q1/2014 - Q1/2015
Share price	4.2	26.2	43.0	-4.2	26.5
Net Asset Value	4.6	17.7	35.0	-2.1	26.1
Reference Index	3.9	7.6	35.9	-8.7	19.4

What are the risks?

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 Asia 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 Company 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 Company invests in smaller companies that may be less liquid than in larger companies and price swings may therefore be greater than investment companies that invest in larger companies.

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.

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 Company

The fund can use derivatives to protect the capital value of the portfolio and reduce volatility, or for efficient portfolio management.

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Please remember that 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.

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Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England.

Schroder Unit Trusts Limited is an authorised corporate director, authorised unit trust manager and an ISA plan manager, and is authorised and regulated by the Financial Conduct Authority.

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