Capturing the emergence of quality in Asia

Ninety One’s Asia Pacific Franchise fund recently passed its three-year anniversary since transitioning to the Quality investment team’s stewardship, delivering attractive returns. But how much of this is due to its style bias and concentrated sector exposure? Charlie Dutton explains why careful stock selection built on our philosophy and process has helped produce differentiated returns.

Nov 20, 2020

6 minutes

Charlie Dutton
Ninety One’s Asia Pacific Franchise fund recently passed its three-year anniversary since transitioning to the Quality investment team’s stewardship, delivering attractive returns. But how much of this is due to its style bias and concentrated sector exposure? Charlie Dutton explains why careful stock selection built on our philosophy and process has helped produce differentiated returns.

The fast view

  • Despite a clear style bias to quality, there is more to Asia Pacific Franchise’s track record than this bias and concentrated sector exposure to recent outperformers.
  • Stock picking has been a core contributor to returns, thanks to the Fund’s investment philosophy and process to selecting those equities that drive performance.
  • Furthermore, quality stocks dominate the Asia Pacific benchmark by market cap but focusing on such narrow leadership means potentially missing out on other significant performers.
  • It is also important to not confuse growth with quality; some outperforming growth stocks – which may be excellent businesses – do not fit our investment philosophy.

We are often asked how the strategy compares with passive approaches. There have been a number of indices launched in the recent years, some of which aim to capture the quality approach to investing in Asia Pacific equities. Examining these indices, the MSCI AC Asia ex Japan Quality Index has the most consistent exposure to stocks we would define as quality1. Comparing the performance divergence between this systematic approach to quality in Asia and our fundamental approach reveals the importance of research and stock selection.

Asia Pacific Franchise has comfortably outperformed passive alternatives

Asia Pacific Franchise has comfortably outperformed passive alternatives 

Past performance is not a reliable indicator of future results, losses may be made.

Source: Morningstar, Ninety One, as at 31 October 2020, since beginning of manager tenure: 16 October 2017. Performance is net of fees (NAV based, including ongoing charges), net income reinvested where applicable, in GBP. The Fund is actively managed. Any index is shown for illustrative purposes only.

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1 MSCI does not offer an AC Pacific ex-Japan Quality Index, meaning there is not a precise cross over in geographies (Australia is excluded). However the difference in performance between MSCI AC Asia ex-Japan and (MSCI AC Asia Pacific ex-Japan) is historically similar: YTD through October 31: 11.1 (7.8) ; 2019: 13.6 (14.6); 2018: -9.2 (-8.6); 2017: 29.4 (29.5); 2016: 25.9 (25.8). For professional investors and financial advisors only. Not for distribution to the public or within a country where distribution would be contrary to applicable law or regulations.

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

 

Authored by

Charlie Dutton
Portfolio Manager

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This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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