Investment trusts focused on Asian markets have been increasing exposure to the region’s biggest technology companies in an attempt to arrest years of modest performance.

Over the last few years, Asia mega cap tech names, such as online shopping platform Alibaba and Tencent, the social network and gaming firm, have been the standout stock market performers, and they have held-up well in the market correction.

GROWTH & RESILIENCE

At $216.79, Alibaba stock is trading just a fraction off all-time highs while Tencent set a 2020 peak of $440 on 20 May.

The combination of growth and relative resilience, have seen Asia investment trust specialists increase concentration on this narrow part of the market.

Asia Dragon (DGN) has over the last three years almost doubled its exposure to the area,’ said analysts at Stifel.

The broker said that four out of the six Asian generalist trusts had about one third or more of their portfolios in tech stocks at the end of the first quarter, to 31 March 2020.

DEFENSIVE AND SMALL CAP STRUGGLES

The switch into Asian mega tech comes as defensive strategies have floundered and small caps remain stuck in a multi-year rut and more vulnerable in a recession.

‘The performance of both Scottish Oriental Smaller Companies (SST) and Pacific Assets (PAC) have disappointed versus expectations,’ said Stifel’s number crunchers.

Both funds take a defensive approach and entered the market sell-off with significant levels of net cash, yet still only performed in line with their respective market indices. ‘We had hoped that both funds would have proven themselves in market sell-offs,’ said Stifel.

DIGITAL DRIVING PERFORMANCE

That contrasts sharply with Asia trusts that have embraced large tech companies driving the digital revolution.

For example, the JPMorgan Asia Growth & Income Trust (JAGI) has consistently outperformed since the appointment of co-managers Richard Titherington and Ayaz Ebrahim towards the end of 2015, topping the region’s best performance league over one and three years, and only narrowly missing out on the hat-trick over five years by a whisper.

Fund Discount 1 Year, NAV total return 3 Year, NAV total return 5 Year, NAV total return Dividend yield
Aberdeen New Dawn -13% 1.1% 12.8% 37.4% 1.9%
Asia Dragon -12% -0.5% 12% 37.5% 1.3%
Fidelity Asian Values -10% -18% -12.8% 19.2% 3%
Invesco Asia Trust -13% -2.6% 6.1% 42.7% 2.9%
JPMorgan Asian -1% 3.8% 23.3% 58.8% 4.2%
Pacific Assets -8% -6.9% 7.4% 32.5% 1.3%
Schroder Asia Pacific -11% 2.7 13.8% 59.2% 2.3%
Scottish Oriental Smaller Cos -16% -17.8% -17.7% 2.4% 1.5%
MSCI Asia ex Japan 4.4% 15% 40.5%
MSCI Asia Pacific ex Japan 2% 13% 39%
MSCI Asia ex Japan Small Cap -5.9 -7.1% 1.8%
Source: Trust data, Stifel

‘We recognise the manager’s large cap and growth style will have helped performance in recent years, but the outperformance in both up and down markets has been impressive,’ said Stifel.

Big Asia tech names featuring prominently in the JPMorgan Asia Growth & Income portfolio include the above mentioned Tencent (it’s biggest single stake) and Alibaba, plus electronics and microchips firms Samsung and TSMC.

The portfolios of Schroder Asia Pacific (SDP) and Aberdeen New Dawn (ABD), the only other two trusts to put up a positive performance over the past year, are also top heavy with similar tech names.

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Issue Date: 21 May 2020