First State Asia Focus Fund (UK OEIC)

Transcription

1 First State Asia Focus Fund (UK OEIC) Quarterly Investment Report

2 Important Notice No person in any such jurisdiction should treat this material as constituting an offer, invitation, recommendation or inducement to distribute or purchase securities, shares, units or other interests or enter into an investment agreement unless in the relevant jurisdiction, such an offer, invitation, recommendation or inducement could lawfully be made to them. This material contains or is based upon information that we believe to be accurate and reliable. While every effort has been made to ensure its accuracy, we do not warrant that it contains no factual errors. We would like to be told of any such errors in order to correct them. No part of this material in whole or in part, may be reproduced, circulated or transmitted in any form or by any means without our prior written consent. Reference to the names of each company mentioned in this communications is merely for explaining the investment strategy, and should not be construed as investment advice or recommendation to invest in any of those companies. The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back less than the original amount invested and past performance information is not a guide to future performance. BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich has been designated as the Swiss Representative and Swiss Paying Agent. The Prospectus, the articles of incorporation as well as the last annual and interim reports of the Company and the changes in the investment portfolio can be obtained free of charge at BNP Paribas Securities Services. The fund is a sub fund of First State Investments ICVC ('FSI') which is an investment company with variable capital incorporated in England and Wales. FSI is structured as an umbrella company. Each fund may issue different classes of share and within each class there may be different types of share. Issued by First State Investments (UK) Limited which is authorised and regulated by the Financial Conduct Authority (registration number ). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB, number Telephone calls with First State Investments may be recorded. Commonwealth Bank of Australia (the "Bank") and its subsidiaries are not responsible for any statement or information contained in this document. Neither the Bank nor any of its subsidiaries guarantee the performance of the Company or the repayment of capital by the Company. Investments in the Company are not deposits or other liabilities of the Bank or its subsidiaries, and the Company is subject to investment risk, including loss of income and capital invested. Contents Portfolio Overview 1 Performance 2 Commentary 3 Portfolio Allocation and Stock Holdings 4 Risk Analysis 5

3 First State Asia Focus Fund Portfolio Overview Investment philosophy Our investment approach founded in 1988 is based on: - Stewardship - An absolute return mindset - Bottom-up analysis - Long-term thinking - Searching for quality companies - Finding sustainable and predictable growth - Strong valuation disciplines Investment objective and policy The Fund aims to grow your investment. The Fund invests at least 80% in shares of companies based in, operating in, or have their economic activity mainly in the Asia Pacific region including Australia and New Zealand (excluding Japan). The Fund may also invest up to 20% in shares of companies around the world. The Fund invests in shares of large and mid-sized companies in the region. These companies generally have a total stock market value of at least US$1 billion. Fund Information Fund Launch Date 24 August 2015 Fund Size ( m) 91.6 IA Sector Asia Pacific Excluding Japan Benchmark MSCI AC Asia Pacific ex Japan Index Number Of Holdings 64 Fund Manager(s) Martin Lau/Richard Jones Fund Yield 0.6% Available Share Classes ISIN Sedol Share Class GB00BWNGXH62 BWNGXH6 First State Asia Focus Fund EUR Class B (Accumulation) GB00BWNGXJ86 BWNGXJ8 First State Asia Focus Fund GBP Class B (Accumulation) GB00BWNGXK91 BWNGXK9 First State Asia Focus Fund USD Class B (Accumulation) For further information Head of European & UK Wholesale Graham Fox +44 (0) graham.fox@firststate.co.uk Sales Director, Europe & Third Party Distributions Marc Bishop +44 (0) marc.bishop@firststate.co.uk Business Development Manager Scotland, North of England & Ireland Ross Stewart +44 (0) ross.stewart@firststate.co.uk Sales Director, South of England & Channel Islands Tom Burton +44 (0) tom.burton@firststate.co.uk Sales Director, Europe Eva von Sydow +44 (0) eva.vonsydow@firststate.co.uk David Gaschik +44 (0) david.gaschik@firststate.co.uk Senior Relationship Manager Fraser Wood +44 (0) fraser.wood@firststate.co.uk Head of Middle East & Africa Ali Karmali ali.karmali@firststate.ae Head of Client & Consultant Relations Chris Gower +44(0) chris.gower@firststate.co.uk Head of Institutional Business Development Frank Glennon +44(0) Frank.Glennon@firststate.co.uk 1 FIRST STATE ASIA FOCUS FUND (UK OEIC) - QUARTERLY INVESTMENT REPORT 30 SEPTEMBER 2017

4 Performance Cumulative Performance (% in GBP) to Since Launch 10 yrs 5 yrs 3 yrs 1 yr YTD 6 mths 3 mths First State Asia Focus Fund MSCI AC Asia Pacific ex Japan Index Annual Performance (% in GBP) to 30/09/17 30/09/16 30/09/15 30/09/14 30/09/13 First State Asia Focus Fund MSCI AC Asia Pacific ex Japan Index Calendar Year Performance (% in GBP) to 30% 25% 24.7% 27.3% 20% 15% 10% 5% 0% Fund return Benchmark return Past performance is not a reliable indicator of future results. All performance data for the First State Asia Focus Fund Class B (Accumulation) GBP as at. Source for fund - Lipper IM / First State Investments (UK) Limited, net of fees, income reinvested net of tax; source for benchmark - MSCI, income reinvested net of tax. Since inception performance figures have been calculated from 24 August FIRST STATE ASIA FOCUS FUND (UK OEIC) - QUARTERLY INVESTMENT REPORT 30 SEPTEMBER 2017

5 Commentary Market Review The MSCI AC Asia Pacific ex-japan Index increased by 2.7% in UK sterling terms over the quarter. China increased on the back of rising property prices and strong performance in the materials sector, while Thailand was helped by improved macro data. On the negative side, Pakistan declined on account of the country's political turmoil and Indonesia continued to suffer from net foreign outflows. Performance Review On portfolio holdings, China Mengniu Dairy continued to benefit from improvements to its product mix. Margins have shown a healthy expansion, while operating cash flow has soared due to better inventory management. AAC Technologies, one of Apple's main suppliers of acoustic components (speaker boxes, receivers) and haptics (provides tactile feedback such as vibrations), reported a jump in profits and strong sales growth. On the negative side, Ramsay Health Care weakened on concerns around its slowing UK and European business. LG Household and Health Care continued to face headwinds in the duty free segment, as geopolitics continues to keep Chinese tourists away. Outlook We remain cautiously positioned across the Asia Pacific portfolios as equity markets continue to be buffeted by geopolitical events. The status quo in Western democracies, has unsurprisingly, been challenged due to rising levels of income inequality and public discontent. Though there have been positive signs of a revival in world trade growth in general and Asian exports in particular, we maintain our concerns around populism and the backlash against globalisation. Meanwhile, softer inflationary concerns coupled with an overly tightening bias from central banks has the potential to stamp out what little recovery there is. However, as bottom-up investors, our focus remains on finding highquality management teams and businesses that have, over time, delivered predictable and sustainable returns comfortably in excess of the cost of capital, despite the prevailing headwinds. We believe that finding and investing in these companies and holding for the long-term is the most important foundation for compounding financial value over time. Fund Activity We initiated a position in Tata Consultancy Services (TCS), India's largest IT service provider, after a recent meeting provided optimism on the company's growth prospects. The stock had gradually de-rated from 25x to 20x over the past few years due to a challenging environment in the Banking, Financial Services and Insurance (BFSI) sector, one of their main customer groups. However, we believe growth in the digital segment and non BFSI/retail could lift revenue growth from here on. We purchased FPT Corp, an IT outsourcer and fixed line telecom operator in Vietnam. We like the sound of the chairman and believe that Vietnam might have a good chance with IT outsourcing, given its young workforce and cost-advantage for the next decade or so (salaries around 20-30% lower than India/China). At 11x PE, we believed the absolute valuation, even including the 20% off-market premium, looked comparatively attractive. We sold Infosys Technologies on concerns around the political in-fighting at the company which led to the resignation of the CEO and divested Dr Reddy's Laboratories after the company reported weak earnings due to regulatory challenges and price erosion in the US market. 3 FIRST STATE ASIA FOCUS FUND (UK OEIC) - QUARTERLY INVESTMENT REPORT 30 SEPTEMBER 2017

6 Portfolio Allocation and Stock Holdings Ten Largest Holdings as at Stock Name Country Sector Portfolio Weight (%) Index Weight (%) Taiwan Semiconductor (TSMC) Taiwan Information Technology HDFC Bank Ltd-ADR India Financials FS Indian Subcontinent III USD Acc India Multiple Sectors CSL Limited Australia Health Care Midea Group Co Ltd China Consumer Discretionary Samsung Electronics Co Ltd Pfd Non-Voting South Korea Information Technology CK Hutchison Holdings Ltd Hong Kong Industrials Oversea-Chinese Banking Corporation Limited Singapore Financials Housing Development Finance Corporation Limited India Financials Dairy Farm International Holdings Hong Kong Consumer Staples Sector Breakdown Country Breakdown Information Technology 23.1% (26.0%*) Financials 19.3% (26.4%*) Consumer Staples 15.0% (4.9%*) Consumer Discretionary 12.4% (8.1%*) Industrials 12.2% (6.9%*) Health Care 7.5% (3.1%*) Utilities 3.3% (3.0%*) Real Estate 2.4% (6.5%*) Materials 2.0% (6.9%*) Telecommunication Services 1.0% (4.0%*) Other 0.0% (4.3%*) Cash 1.7% (0.0%*) China 17.4% (27.9%*) India 15.8% (7.9%*) Hong Kong 12.9% (9.3%*) Taiwan 11.1% (10.9%*) South Korea 9.1% (14.1%*) Australia 6.3% (18.5%*) Philippines 6.3% (1.1%*) Singapore 4.7% (3.4%*) Japan 4.7% (0.0%*) Other 10.0% (6.9%*) Cash 1.7% (0.0%*) *Benchmark Weight Sector and Country classifications provided by Factset and First State Investments. *Benchmark Weight Market Capitalisation Breakdown (GBP) % to 500m 500m to 1bn 1bn to 2.5bn 2.5bn to 5bn 5bn to 10bn 10bn to 50bn 50bn to 100bn 100bn+ Portfolio Weight Benchmark Weight Data source: For illustration purposes only. Portfolio weights may not add up to 100% as cash holdings are excluded and full coverage of stocks is not always available. This information is calculated by First State Investments. 4 FIRST STATE ASIA FOCUS FUND (UK OEIC) - QUARTERLY INVESTMENT REPORT 30 SEPTEMBER 2017

7 Risk Analysis Portfolio Risk Analysis - Ex-Ante at Risk Measure Value Risk Description Dividend Yield (Fund) 2.02% The annual dividend yield paid per share divided by the share price. This factor measure the value of company shares according to the stream of dividend income resulting from share ownership. Dividend Yield (Index) 2.60% The annual dividend yield paid per share divided by the share price. This factor measure the value of company shares according to the stream of dividend income resulting from share ownership. Price to Book (Fund) 2.96 The ratio of the company's book value (the sum of shareholders' equity plus accumulated retained earnings from the P & L account) to its share price. This factor has been one of the most successful measures of the intrinsic value of company shares. Price to Book (Index) 1.85 The ratio of the company's book value (the sum of shareholders' equity plus accumulated retained earnings from the P & L account) to its share price. This factor has been one of the most successful measures of the intrinsic value of company shares. Price to Earnings (Fund) Annual earnings (adjusted for amortizations of intangibles, extraordinary charges and credits) per share divided by the share price. This factor measures the worth of a company's ability to support each share with after tax earnings. Price to Earnings (Index) Annual earnings (adjusted for amortizations of intangibles, extraordinary charges and credits) per share divided by the share price. This factor measures the worth of a company's ability to support each share with after tax earnings. Data source: Ex-Post information is calculated by First State Investments, Ex-Ante information is provided by Style Research. 5 FIRST STATE ASIA FOCUS FUND (UK OEIC) - QUARTERLY INVESTMENT REPORT 30 SEPTEMBER 2017