Four reasons why Asia is the long-term story you cannot ignore
With many of its countries now coming out of lockdown and with Western economies struggling to come...
T. Rowe Price Asian Opportunities Equity
Manager Eric Moffett invests across Asia ex-Japan in a concentrated portfolio of high-quality companies. These companies tend to be established, with leading market positions and good management teams who prioritise shareholder returns. Portfolio turnover is low and, while the focus on quality may cause the fund to underperform in the short term in a strongly rising market, it has tended to outperform on the downside, which is key in a more volatile market such as Asia.
Our opinion
We like Eric’s ‘safety first’ approach. He focuses on downside protection, which means that whilst T. Rowe Price Asian Opportunities Equity might not keep up in a strongly rising market, it tends to do very well when times are tough. Having the backing of a strong analyst team on the ground in Asia is very beneficial. Eric’s ‘tortoise versus hare’ style of investing works wonders in the volatile markets of Asia, making this an option for a core Asian holding.
Company description
Founded in 1937, T. Rowe Price is one of the world's largest investment managers and was awarded the Elite Provider for Equities Rating each year from 2016 to 2020. Fundamental research is at the heart of the T. Rowe Price approach, with more than 200 in-house analysts dedicated to equity and fixed income research. Experienced and stable fund management teams are a key feature of the firm.
Fund manager
Manager Eric Moffett has managed this fund since launch in October 2017. He has 18 years of investment experience, 11 of which have been with T. Rowe Price. He has a degree in economics from Princeton University and an M.B.A. from Harvard Business School. Eric is based in Hong Kong, along with the majority of T. Rowe’s considerable Asian analyst team, a few of whom are also based in Singapore and a couple in London.
Buy high-quality businesses, run by high-quality people, and hold them for the long term.
Eric MoffettFund manager
Investment process
Eric, with the help of the analyst team, seeks out high-quality businesses that will reliably compound earnings and sustain strong cash flow over time. These companies tend to be established companies, with leading market positions and good management teams who prioritise shareholder returns. He looks for returns-focused capital allocation and prudent balance sheet management.
An initial quantitative screen focuses on quality and valuation. Then detailed company analysis is undertaken. The team visits companies to enhance its understanding of the company’s operations. These visits are key to enabling it to make independent judgments about the commitment, skills, and resources the company commands.
Eric also looks at the industry in which the company operates, analysing its structure and outlook. The team examines a company’s pricing power, product cycles, market share trends, margin outlook and leverage. Importantly, it assesses if management cares about shareholders and has high corporate governance standards. To supplement the team’s assessment of ESG risk factors, external research partners are used to provide detailed company-level reports.
Once these high-quality compounders have been identified, valuation is assessed. Various valuation criteria are applied to each company, depending on which sector it operates. Valuation is assessed relative to local or global sector peers, as appropriate.
Whilst the bottom-up assessment is crucial, top-down factors are also taken into account. The team looks at political stability, government policies, national accounts, central bank policy and currency stability, to name but a few things.
Eric then constructs a portfolio of 40-70 stocks from the bottom up, subject to liquidity constraints, with holdings ranging from 0.5%-6%.
Risk
Risk management is embedded within the investment process and close attention is paid to ensuring diversification of exposures. Position sizes are determined by the potential upside of an individual stock and will range between 0.5%-6%. Country and sector weightings usually around 5% more or less than the benchmark. The focus on quality may cause the fund to underperform in the short term in a strongly rising market, for example in the very early stages of a recovery. However, it has tended to outperform on the downside, which is key in a more volatile market such as Asia.
Read more about this fund
67: Why Europe’s attitude towards China is more important than the US
“It felt like a ‘going out of business’ sale, where people were tripping over each other to buy the bargains. There were just so many good companies I bought 14 new names.” This is how Eric Moffett, manager of T. Rowe Price Asian Opportunities Equity, described the investment opportunities afforded by the markets falls in March. He also tells us...
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