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 Company

Our trusts

Introduction

Performance

Commentary

Documents

Governance

Annual General Meeting 2020 Presentation

While the Government’s “Stay at Home Measures” are in force, public gatherings of more than two people are prohibited. In place of an in-person presentation at this year's AGM, fund manager Robin Parbrook has recorded his shareholder presentation.

Q1 2020 Commentary

Asian equities declined sharply in the first quarter, as Covid-19 became a pandemic and the prospect of a global recession loomed. US dollar strength was a drag on returns. The broader Asian equities market decreased in value but outperformed the world market. ASEAN (Association of Southeast Asian Nations) markets were notably weak and all underperformed the region. India also finished behind the regional index as the number of Covid-19 cases began to increase, and the government announced a national lockdown for at least three weeks. Korea also lagged behind. Although the country’s response to the crisis appeared to be progressing, the weaker outlook for global trade and growth weighed on the market.
China and Hong Kong were the only markets to outperform the region. China, seen as ahead of the curve as it was the first country to record cases of Covid-19, took measures to lock down the city of Wuhan and the wider province of Hubei. Its measures to contain the spread were deemed a success as the number of active cases of Covid-19 in mainland China appeared to peak in February, and subsequently fell sharply, with economic activity beginning to resume. Meanwhile, the spread of the virus appeared to be relatively contained in Hong Kong.
The fund declined alongside the broad-based sell-off in markets in Q1, as the market took a sharp turn into one of the most rapid corrections in history where investors braced for an acute recession triggered by the economic fallout from lockdown measures globally to combat the COVID-19 pandemic. The fund’s hedges have helped offset some negative returns, whereas stock selection was broadly neutral. Among the key positives was the fun’s limited exposure to energy, financials and materials which were the weakest sectors in Asia. Due to our long-term structural concerns, the fund also only owns a handful of listed stocks in ASEAN and India, which were the weakest markets in the region, falling over 30% during the first quarter.
However, these positives were offset by the fun’s low exposure to consumer staples, which we have long viewed as expensive given the subdued growth outlook for most domestic Asian economies, and utilities which we rarely own in Asia due to fluid regulatory regimes (a.k.a. the requirement to do national service). The yield names in the fund also struggled as value and yield remained heavily out of favour with investors. The recent market correction remains an unusual one where momentum continued to outperform, with no signs of reversion and yield stocks performing as has normally been the case in past sharp corrections in Asia.
With markets having collapsed in March we are starting to see some good opportunities to pick up favoured stocks. Two of the valuation indicators used in the fund are pointing to crisis level valuations. These are shown in the chart below. Both our top down indicator (CVI) and the bottom down indicator (BVI) are now at the BUY trigger level. This is the level at which we normally remove any capital preservation strategies (futures and options) and potentially look to deploy gearing. The volatility within the region also meant we have been more active in accumulating our favoured holdings opportunistically as attractive value emerged over the quarter.
We are also gradually rolling off remaining hedges (our put options) and starting to deploy a little gearing as we pick up blue chip names that we feel are oversold. Given the unfolding crisis we are only doing this gradually. The virus impact will pass and the world will return to some kind of normality but clearly we have no idea on the shape and timing of recovery. Our feeling is we have time on our hands, we expect plenty of volatility to come and lots of rights issues and fund raising as the worst of the excesses in the high yield corporate bond market in particular unfold.

Discrete yearly performance (%)

	Q1/2015 - Q1/2016	Q1/2016 - Q1/2017	Q1/2017 - Q1/2018	Q1/2018 - Q1/2019	Q1/2019 - Q1/2020
Share price	-4.2	43.0	26.2	4.2	-13.7
Net Asset Value	-2.1	35.0	17.7	4.6	-11.6
Reference Index	-8.7	35.9	7.6	3.9	-10.9

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.

Portfolio holdings

Download

Never miss an update

To receive regular notifications, please register for our email updates.

Latest insights

Learn more about our approach to managing investment trusts and access the latest ideas and opinions from our investment teams.

Contact Schroders

Schroders is a world-class asset manager operating from 35 locations across Europe, the Americas, Asia, the Middle East and Africa.

Worldwide locations

For any further questions, please contact us.

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.

Select a region

Select a location

Select a site

Retail Investors

Retirement Services

Mutual fund investment

Private Investor

Asset management

Wealth management

Select a region

Select a location

Select a site

Retail Investors

Retirement Services

Mutual fund investment

Private Investor

Asset management

Wealth management

Schroders in the UK

SCHRODERS Global

LATEST CAREERS

LATEST NEWS

Sustainability

Multi-Asset Solutions

Investment trusts

Global Investor Study

Infographic: Sustainability Report Q2 2020

investIQ

Investment Trusts

Related Search

Schroder Asian Total Return Investment Company plc