236. Why more investors should consider Asia for income
Richard Sennitt, manager of Schroder Asian Income fund, explains both the structural and cyclical...
Some 71 nations and territories – representing one-third of the world’s population – are in the throes of competing in the Commonwealth games on Australia’s Gold Coast. And, with the games airing on our TV screens each morning, it serves as a reminder of how richly diverse the world really is.
From an investment perspective, it also serves as a reminder that there is a huge range of regional equities to choose from, all boasting their individual merits and potential risks.
But are the countries winning the most gold medals at the moment also being awarded a top spot in our Elite Rated funds’ portfolios? We take a look at the top five:
Currently in the top spot of the Commonwealth league table, Australia is favoured by a number of the managers of our Elite Rated funds. For instance, Jason Pidcock – who heads up Jupiter Asian Income – has allocated 23.7% of his portfolio to Australian equities, which makes it his largest regional weighting.
The fund aims to capitalise on the opportunities of today, as well as the potential of tomorrow, and Jason is not afraid to hold much more or less of certain countries than the benchmark in pursuit of this aim. The higher weighting to developed markets such as Australia make it a relatively defensive Asia Pacific option.
Schroder Asian Income and Stewart Investors Asia Pacific Leaders also have sizeable allocations of 15.5% and 7.5% respectively. National Australia Bank features in the Schroder fund’s top ten, while biotech company CSL Limited is Stewart Investors Asia Pacific Leaders’ sixth largest holding representing 4.2% of the fund.
England is in second place (with Scotland, Wales and Northern Ireland in seventh, eighth and nineteenth place respectively) – on the Commonwealth medal league table.
Two examples of Elite Rated global funds with high conviction in UK equities are Guinness Global Equity Income at 21% and Baillie Gifford Global Discovery at 18.5%. The former, which is headed up by Matthew Page and Ian Mortimer, has an equally-weighted portfolio of 35 stocks which are repositioned on a ‘one-in, one-out’ basis. The latter looks for hidden gems further down the cap spectrum for high-growth opportunities.
Closer to home, Jupiter European Opportunities Trust – which is pan-European – has a 25% weighting to UK equities. Managed by Alexander Darwall, it is completely unconstrained and can invest anywhere across Europe. Alexander prioritises finding companies with proven business models, honest management teams and business plans which offer sustainable long-term growth.
India is currently in third place. It is also popular among investors (us included) for its favourable demographics, increasingly shareholder-friendly policies and its fast-growing economy.
In terms of Elite Rated emerging market funds, MI Somerset Emerging Markets Dividend Growth and Magna Emerging Markets Dividend both have sizeable allocations at 9.22% and 8.8% respectively. MI Somerset Emerging Markets Dividend Growth’s largest Indian constituent is IT services company HCL Technologies, while Magna Emerging Markets Dividend’s largest Indian stock allocation is to mortgage lender Indiabulls Housing Finance.
For those who want concentrated Indian exposure, there is of course Goldman Sachs India Equity Portfolio, which is run locally from India by Hiren Dasani.
In fourth place is Canada. BlackRock Gold & General, which invests in gold and precious metal shares, holds a hefty 49% allocation to the country because of its abundance of precious metal mines.
Another specialist fund to hold a significant chunk of its portfolio – 7.68% – in Canadian holdings is Polar Capital Global Insurance, which invests specifically in risk and casualty insurance stocks from around the world.
For those seeking income, M&G Global Dividend has a reasonable 8% in Canadian equities, with oilfield service company Gibson Energy the portfolio’s second-largest overall holding.
South Africa is in fifth place in the medal table. The aforementioned Guinness Global Equity Income fund has a 3.6% exposure to the South African equity market through its largest individual holding – telecom company Vodacom Group.
Economic growth in the country has been dismal since the global financial crisis as it has been mired in economic and political mismanagement. But the Guinness managers said recently: “There is a gathering bull case for South African equities based upon the recent leadership change, falling inflation, low household debt and the potential for interest rate cuts. The issues of inequality, poor education and skills with sky-high unemployment amongst the young are all deeply embedded, however, so you can’t simply take a broadbrush approach and invest blindly in the index. You need to focus on specific business attributes in the form of long-term profitability and a demonstrable track record in making money even in the toughest conditions.”
Elite Rated M&G Global Emerging Markets fund has a 10.3% weighting to South African equities, which is a 3.3% overweight relative to its MSCI Emerging Markets index. Barclays Africa Group is a top ten holding.