Following a spell of poor performance, in March 2013 the board of Henderson Asian Growth Investment Trust changed its manager to Schroders and renamed the trust Asian Total Return Investment Company (ATR). The trust has since been managed by Robin Parbrook and King Fuei Lee, who have an outstanding record with an offshore fund, Schroder ISF Asian Total Return (LU0378801590). This fund has beaten MSCI Asia Pacific ex Japan index over three and five years by a considerable margin, and the Morningstar Asia Allocation category over one, three and five years, again by a considerable margin. It has also made positive returns in three out of the last four calendar years, and beaten its peer average in every calendar year since its inception in 2007.
- Strong manager record
- Discount to NAV
- Downside protection
- Discount control
- Short-term performance less strong
- Performance fee
This has been achieved with considerably lower volatility than its benchmark, MSCI AC Asia Pacific ex Japan. Annualised volatility for the fund over three years is 12.2 per cent as opposed to 17.7 per cent for the index.
Asian Total Return Investment Company is now being run along the same lines as this successful fund, aiming for a high rate of total returns while offering capital preservation via the use of derivatives.
Asian Total Return had been trading at a discount to its underlying net asset value (NAV) prior to March 2013, but when its new managers took over the discount narrowed and at one point rose to a premium of 4.4 per cent. However, the trust has now moved back to a discount of 2.7 per cent. But Schroders has implemented a discount control mechanism: if the discount goes beyond 9 per cent it will begin share buy-backs. And if the performance of the trust is as successful as its open-ended equivalent, the discount could tighten again.
| IC TIP RATING | |
|---|---|
| Tip style: | SPECULATIVE |
| Risk rating: | HIGH |
| Timescale: | LONG TERM |
The trust's new managers follow a three-step investment process. They favour companies that can generate returns on investment that exceed their weighted average cost of capital.
If they like a share but are negative on the country or market where it is listed, they can then hedge those risks by buying or selling index futures.
They can also express tactical views using three- to six-month hedges to remove market risk.
Mr Parbrook has more than two decades of investment experience while Mr Lee has 14 years' experience and designed the quant model they use to hedge market and country risk. This is the first time that they have managed an investment trust, but Szymon Idzikowski, an analyst at Morningstar, says: "They bring solid expertise in stock-picking and portfolio construction, and a proven track record at their open-ended fund".
Asian Total Return has a performance fee of 10 per cent of the excess annual NAV total return of the trust, but above a high hurdle rate of 7 per cent. Base and performance fees will be capped at 2 per cent of net assets, and Schroders waived the fees for a period of six months following its appointment in March 2013.
Asian Total Return will differ from its open-ended equivalent in that it will have a bias to small- and mid-cap shares, because it is easier for investment trusts to hold less liquid assets. This could mean it will be more volatile.
The new managers' strategy has also not been as strong over the short term.
However, Asian equities are a long-term investment over which periods these managers have proved themselves and, given uncertainty in Asian markets, a total return strategy that mitigates downside could be useful. So while this investment trust trades at a discount, this could be a good opportunity to buy.
ASIAN TOTAL RETURN INVESTMENT COMPANY (ATR) | |||
| PRICE: | 190.75p | GEARING: | 100% |
| AIC SECTOR: | Asia Pacific - ex Japan | NAV: | 195.55p |
| FUND TYPE: | Investment trust | PRICE DISCOUNT TO NAV: | 2.7% |
| MARKET CAP: | £139.8m | YIELD: | 1.9% |
| NO OF HOLDINGS: | 57* | ONGOING CHARGE: | 0.9% |
| SET-UP DATE: | 26 November 1987 | MORE DETAILS: | schroders.co.uk/its |
Source: Investors Chronicle & *Schroders
1-year cumulative total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | |
Asian Total Return Investment Company share price | 15.64 | 4.55 | 135.89 |
AIC Asia Pacific ex Japan Average | 15.19 | 17.42 | 187.99 |
MSCI AC Asia Pac Ex JPN GR USD | 11.70 | 12.45 | 132.61 |
Schroder ISF Asian Total Ret A | 10.04 | 25.94 | 180.13 |
Morningstar Asia Allocation Average | 3.91 | 9.29 | 76.90 |
Source: Morningstar as at 11 October 2013
Asian Total Return Investment Company Top 10 holdings (as at 30 August 2013)
| Company | % |
Jardine Strategic | 4.2 |
AIA | 3.7 |
Jardine Matheson | 3.5 |
Hyundai Motor | 3.5 |
Taiwan Semiconductor Manufacturing | 3.3 |
HSBC | 3.2 |
Sun Hung Kai Properties | 3.1 |
Brambles | 3.1 |
Hongkong Land | 3.1 |
Kasikornbank | 2.6 |
Geographic allocation (as at 30 August 2013)
| Country | % |
Hong Kong | 33.5 |
Australia | 7.7 |
Philippines | 7.7 |
China | 7.4 |
South Korea | 7.2 |
Singapore | 6.3 |
Taiwan | 6.2 |
Indonesia | 5.5 |
Thailand | 5.4 |
India | 4.7 |
Malaysia | 1.6 |
Other | 1.7 |
Total options and cash | 5.2 |
Hedges | -24.7 |
Source: Schroders
