First State Asia Focus Fund – 10/04/18

First State Asia Focus Fund, launched in 2015, has at least 80% of its shareholdings in companies that operate in Asia Pacific. The fund’s investment remit includes Australia and New Zealand but not Japan. The remaining 20% of the fund is invested worldwide, and up to 10% may be invested in other funds. The fund uses derivatives for risk management and fund efficiency. All of its investments are concentrated in mid-size and larger companies – those with a market value of over $1bn.

While First State Asia Focus is a relatively new fund, First State has a long track record of successful investing in the region. Martin Lau, the manager, holds around 70 stocks and the fund is valued at £304m. It offers investors a way to share in some of the more promising Asian stocks without too much risk. The fund invests in companies with good cash flow and cost control, along with high management standards.

Cambridge-educated Lau has a good reputation. He formerly worked at BZW and Invesco in London, Hong Kong and Singapore. He has done well in the past when managing the Asian Equity Plus Fund at First State – which of course, is no guarantee of future performance.

Investment style

This fund is suited to investors who are interested in the growth potential of some of these stocks – although looking at the fund’s investments, Samsung is almost certainly a mature player now. However the investment team states that it’s interested in companies that don’t see massive fluctuations in demand from consumers.

Lau and his team visit companies and talk to them to find out what their plans are and how well they are run. The fund aims to hold its investments for the long term, and has a conservative outlook. They will aim to limit losses in falling markets, but of course that can’t be guaranteed.

Asset allocation and shareholdings

The fund holds 17% in Chinese equities, 16.8% in Indian, 13.2% in Hong Kong, 11% in Taiwanese and 8.9% in South Korean. The remaining allocations are mainly split between Philippine, Singaporean Australian and Japanese stocks (it’s not a Japanese fund but this is presumably under its “rest of the world” remit.

The fund’s top six holdings are Taiwan Semiconductor Manufacturing at 5.6%, Overseas-Chinese Banking 3.4%, CSL Limited 3.4%, Housing Development Finance Corporation (one of India’s largest mortgage finance companies) 3.4%, Media Corp 3% and Samsung 3%. In terms of sector analysis, the fund is weighted towards financials, IT and discretionary consumer spending (nearly 60%).

In a year, the fund has risen from 26th to 7th place in its sector but as a relative newcomer, there is no long term track record to look at.

Dividend and share price

Dividends are paid twice yearly, in September and March. Again, with a newly established fund there’s not really a dividend history. The final dividend on the distribution fund was 1.60 at July 2017. However, the historic yield is currently showing at 0.75%.

In the year to July 2017 the fund rose 18.9%. However, it’s down 2.44% in the past 3 months, although year on year it’s up nearly 12%.

Shares in the fund can be dealt daily, so liquidity is reasonable. There’s always a degree of currency risk with funds that are investing in multiple currencies. The fund manager’s report in July 2017 pointed to the good news on world trade, but was also cautious about the growing political instability worldwide. The fund will almost certainly suffer in a protracted US/China standoff over trade.