Commentary

"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 Company

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On 5 May 2021, fund managers Robin Parbrook and King Fuei Lee presented an update on the Company in lieu of a managers' presentation as part of an Annual General Meeting.

Watch the recording here

Q1 2021 Commentary

Market Summary

3 months country returns to 31 Mar 2021 (in GBP %)

Source: Factset, MSCI, Gross total return in GBP terms.

Asian equities recorded a positive return amid continued investor optimism for a return to economic normality. However, sentiment weakened towards the latter half of the quarter as slower vaccination rollouts led to the reintroduction of lockdown restrictions in some countries. The combination of worries over rising inflationary pressures and increasing signs that US/Western vs. China trade tensions could escalate also unnerved investors.
Across the region, the best performing markets in the index were Taiwan, where strong performance from IT names supported gains, and Singapore, where banks benefited from a rotation in market leadership from companies with high growth prospects to companies with less demanding valuations and those that are sensitive to broad economic recovery.
The Philippines was among the weakest markets. A sharp rise in daily new cases of coronavirus resulted in tighter restrictions, weighing on the outlook for the services-oriented economy. Most other Association of Southeast Asian Nations (ASEAN) markets, except for Thailand, were also weaker. In China, expectations for policy normalisation, regulatory uncertainty for certain industries, and ongoing geopolitical concerns dampened sentiment.

Performance Review

- The fund had a strong start into 2021 and posted solid gains in the first six weeks of the year on the back of the positive macro backdrop as the global roll-out of Covid-19 vaccines and expectations for additional US fiscal stimulus boosted investor optimism for a sustained economy recovery. This was however quickly followed by a reversal of performance from mid-February as a sharp rise in US bond yields and a shift in sentiment among Chinese investors led to uncertainty about the liquidity backdrop for markets. For Q1 as a whole the fund gained 3.4% in absolute term, which compares with the reference benchmark with was up by 1.8%.
- From an absolute return perspective, our exposure to tech hardware names in Taiwan (TSMC, Mediatek, Getac) and select internet names (Tencent, SEA) were among the key positive contributors to performance. Our exposure to high-quality exporters in Hong Kong and Taiwan also helped performance. These include Hong Kong-based power tool manufacturer Techtronics and Taiwan’s bike maker Merida Industry, where their product offering and brand positioning remains strong and continues to support share price.
- Meanwhile the recent rotation of market leadership from “growth” to perceived “value” stocks on the back of hopes of global reflation has led to a pull-back in share prices of some of the Chinese internet names and other “lockdown winners” while supporting a rally in deep cyclicals such as financials, commodities, materials, etc. Given our underweight position in the deep cyclical areas, this has offset some of the fund’s performance towards the second half of the quarter. Hedges were a moderate drag given the overall positive market performance over the quarter.

Any company references are for illustrative purposes only and are not a recommendation to buy and/or sell, or an opinion as to the value of that company’s shares.

The commentary is not intended to provide, and should not be relied on, for investment advice or research.

Discrete yearly performance (%)

	Q4/2015 - Q3/2016	Q4/2016 - Q3/2017	Q4/2017 - Q3/2018	Q4/2018 - Q3/2019	Q4/2019 - Q3/2020
Share price	45.3	31.1	8.2	5.3	20.1
Net Asset Value	37.5	24.2	6.5	5.0	21.0
Reference Index	37.7	16.8	4.9	4.0	8.3

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.

Marketing material.

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.

On 17 September 2018 our remaining dual priced funds converted to single pricing and a list of the funds affected can be found in our Changes to Funds. To view historic dual prices from the launch date to 14 September 2018 click on Historic prices.

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