The information technology sector is one of the most popular and profitable sectors in Asia, but the selection of good company managers remains key for Schroders’ Matthew Dobbs. The £696m Asia Pacific fund is overweight China, Hong Kong and Korea, investing in big names such as Samsung Electronics.
Dobbs, who has been managing the trust since launch in 1995, says Hong Kong is a better choice than China, although the latter makes up the largest part of the portfolio.
He says: “The big markets for us are Hong Kong and China. China makes up 45 per cent of the fund, but in Hong Kong corporate governance is better. Most of the Korean companies do business in China.”
For Korea, Dobbs holds investments in exporters that are not only benefiting from the steady recovery in the US as well as Europe, but also in the Middle East, Africa and South America. Indeed, giant tech firm Samsung Electronics is a top holding and makes up 6 per cent of the fund. It is one of the good quality companies Dobbs holds in the sector that is well placed for global growth, he says.
The top holding in the fund is tech company Taiwan Semiconductor Manufacturing at 6.8 per cent. Dobbs says: “Taiwan is similar to Korea in terms of international strength. However, the country is more established in terms of dividend payers.
“IT is a very important sector. It is a big but diverse sector where you have the hardware firms such as Taiwan Semiconductor Manufacturing and you need to get the best there because you get a lot of ‘me too’ low quality, low margin models that you are not going to make money from in the long term sense.”
As of the end of March, between 35 to 40 per cent of the trust was allocated to the IT sector.
Asia also has some key names in the media and retail sectors that are top holdings in Dobbs’ fund. He says “the theme of disruption” is very powerful in Asia with giant players such as Chinese media and internet firm Tencent and e-commerce giant Alibaba the third and fourth of the top holdings in the trust respectively.
Dobbs says: “Disruption in Asia is strong; you need good managers that can run the companies and Asia has got those, not all of them but it has got enough good ones for us to invest.
“You need an open and receptive market and many of the consumers in Asia are open to do things in new ways. It has a young demographic who are open to having an electric cyber wallet in a way that older western people are less inclined to.”
In Asia there are a lot of “not very good” bricks and mortar retailers making it easier for a good e-commerce offering to become more attractive, the fund manager argues.
Dobbs also manages the Schroders Oriental Income fund, another trust at the firm, as well as the Asian Specialist portfolio. Having started as an analyst in the UK, Dobbs later spent a few years in Singapore as “an intellectual challenge”, where he had the chance to get to know the market better. He says: “Singapore is still a very attractive investment destination for long-term investing, it is a very broad investment case.” The trust has a 5.8 per cent weighting to Singapore.
The Schroder Asia Pacific fund is a bottom up fund with stock selection as a major determinant of the investment process. The current net asset value per share is 415p and the fund is trading at around a 12 per cent discount. Dobbs says: “We are not alone. Quite a few of the mainstream non-income-oriented funds are on a 10 to 12 per cent discount. We’ve traded for a while in line with that. There have been a few share buybacks although nothing major.”
The trust has returned 62 per cent over a three-year period as of 18 April compared with 47.8 per cent of the Asia Pacific ex Japan Equities sector, according to FE.