[Awards Q&A] Best Asia-Pacific Equity Fund - Allianz Oriental Income AT SGD

To help our readers better observe what makes a successful fund house, we sent out questionnaires to the winning teams earlier and asked them to shed lights on their team structure, how various risks have affected their investment decisions, and the major portfolio changes over last year, etc.

Morningstar Editors 24.03.2020
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Winner of Best Asia-Pacific Equity Fund - Allianz Oriental Income AT SGD

Key Stats
Inception Date: 2009-08-11
Morningstar Rating (2020-02-29): ★★★★

Manager: Stuart Winchester, Ian Lee

Q1) Can you highlight any major changes you made to the portfolio over the course of 2019? Were there any particular holding(s) or theme(s) that drove the fund’s performance for the year?

The core positioning of the portfolio remained relatively stable throughout 2019. At the beginning of the year our biggest sector exposure was in technology and this was a position we added to during 2019. As a result, Taiwan and Korea were the two largest country exposures. A key theme which benefitted the fund’s performance was the re-rating of technology stocks. The largest single contributor was a small cap Japanese company that provides specialist inspection and systems measurement products which are designed to enhance the productivity and reliability of semiconductors and flat panel displays.

Q2) What are some specific opportunities you have identified for 2020, and do you expect your 2019 outperformers to persist in 2020? What are the top risk factors that could impact your portfolio, and how are you positioned to mitigate these potential risks?

We continue to see many companies with strong and sustainable growth potential in the technology sector, especially in Taiwan and Korea. Often these are smaller companies which have invested heavily in their core technologies over several years to establish a competitive edge. Many of these stocks were sold down heavily in 2018 and although they performed well in 2019, in many cases they continue to offer value relative to their long term growth prospects.

Overall, in the coming decade, Asia will benefit from strong and long-lasting economic growth potential. Historically Asian growth has been fuelled by low cost manufacturing and a high level of exports. In contrast, future economic growth drivers will come more from domestic demand as a result of young and increasingly wealthy populations creating larger addressable local markets. Allied to the rapid adoption of new technology, this will provide powerful growth prospects for companies well-positioned in these markets.

Q3) In which areas do you think risk is over/understated with respect to (i) the outcome of the US Presidential election, (ii) persistently loose monetary policies by major economies, (iii) Coronavirus impact on global growth, and how are you expressing these views in your portfolio?

One risk to markets is an increase in inflationary pressures. This would lead to a rise in interest rates, which would be negative for long duration assets such as equities. Another key risk is the inevitable rise in geo-political conflict with the US as China’s economic power grows. The curtailment of ‘Chimerica’ will challenge business models and supply chains, which poses risks to individual companies. We counter this in the portfolio with extensive company due diligence to assess individual stock risks and take action as appropriate. 

Q4) How is your investment team organized? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?

We have well-resourced and experienced portfolio management and research analyst teams based in Hong Kong and around the world. Being able to connect with fellow investment professionals based in Europe and the US can provide a valuable extra dimension to the way we assess companies. This structure has been in place for many years and we are not expecting changes. 

Q5) Where do you feel that the investment team or the investment process can be improved upon in the future?

The main difference in our approach from peers is flexibility. We invest in companies if we see they offer good return potential without reference to a benchmark index. This is a philosophy that we have used for over 25 years in the strategy and this will not change. Where we are looking to see if we can improve the process is evaluating how we take account of factor risks in the portfolio. This is still very much a work-in-progress and we will only introduce any changes when we can be sure they will enhance the outcome for clients.

View all Morningstar Singapore Fund Awards 2020 articles here.

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