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Jupiter Asian Income bets on Chinese consumer growth

Manager Jason Pidcock explains his cautious approach to China exposure
April 25, 2019

Jupiter Asian Income (GB00BZ2YMT70) only launched in March 2016 but is run by highly experienced manager Jason Pidcock, who made strong returns with his previous fund, Newton Asian Income Fund (GB00B8KPW262). But so far Jupiter Asian Income has not enjoyed a similar level of outperformance – since launch it has returned 55 per cent, during which time MSCI All Country Asia ex Japan index has risen 67 per cent. And the Investment Association (IA) Asia Pacific ex Japan fund sector average return over the same period is 60 per cent.

Mr Pidcock says this is in part because he has been running a more conservative strategy than some of his peers, and there's a good reason for this.

“This isn’t so much a growth portfolio as a total return portfolio,” he says. “I don’t have such an exciting growth story to tell as other [managers]. But the portfolio has a dividend yield of just over 4 per cent and if I get average earnings growth of 6 per cent in 2019, giving a total return of 10 per cent, I will be quite happy with that.”

The fund's current allocation is due to a number of factors. It needs to generate income, unlike most funds in the IA Asia Pacific ex Japan sector, which aim for growth. And Mr Pidcock has also been looking to manage the risk of any credit crunch, which has led him to more conservative companies – part of the reason for the underperformance.

“Balance sheet strength is something I have focused more on recently,” he says. “There have not been many credit crunches or even mini credit crunches in the past decade as monetary policy has been so loose. But if we are entering a period where policy won’t be as loose and a mini credit crunch could occur, I want the portfolio to be robust.”

So he favours companies with low levels of debt, and nine of the fund's 30 holdings have a positive cash position.

He has also avoided riskier but more growth-focused smaller companies and this too could have hampered relative performance. This is because Mr Pidcock is concerned that financial regulators might force equity funds to avoid less liquid assets, such as smaller Asian equities, and he has tried to get ahead of the game. And he runs a fairly concentrated strategy, aiming to hold between 30 and 40 stocks and take bigger positions in the top holdings. These two factors mean he needs to look to the largest and most liquid companies in Asia. So Jupiter Asian Income's smallest stock has a market cap of $2.5bn (£1.93bn) and 90 per cent of its assets are in companies with a market cap larger than $7.5bn.

But over the very short term this strategy has paid off – in the year to date the fund is marginally ahead of the IA Asia ex Japan sector average. And over one year the fund made a total return of 14.3 per cent, well ahead of the IA Asia ex Japan sector average of 4.79 per cent and its benchmark, FTSE World Asia Pacific ex Japan index's return of 5.8 per cent.

Mr Pidcock selects companies via fundamental analysis, and by picking sectors and regions he thinks will thrive in the current economic and political climate. He then adds the companies that best fit these criteria.

He says: “The reason for having a more focused portfolio is so it is higher conviction and doesn't have any unnecessary padding. It also means I don’t have to double up. If I like the idea of investing in a type of company in a certain country, in a certain sector, I will pick the best one.”

Even where there appear to be overlaps, the companies are in there for different reasons. For example, the fund is invested in three Australian financial services companies. “But only one – Westpac (AUS:WBC) – is a big commercial bank," explains Mr Pidcock. "Macquarie (AUS:MQG) is an asset manager and Suncorp (AUS:SUN) is an insurance company.”

No Asian equity investor can ignore political risk, so Mr Pidcock prefers right-leaning less interventionist governments. However, the fund still has exposure to China.

“It’s so big you can’t avoid getting exposure to it, and you will still have exposure even if you don’t invest in China-listed companies,” he explains. “But the political system there is pretty rotten and has not got any better, so when we invest in Chinese companies we do so cautiously. However, I am happy to get exposure to Chinese consumption growth via companies listed outside [mainland] China, and have a number of these.”

One way is via listed casino operators, and the fund holds five such stocks, three of which have exposure to Macau, and some of which have exposure to Singapore and Australia. For example, the fund's largest holding, Sands China (1928:HKG), is listed in Hong Kong and operates integrated resorts in Macau.

“There are other companies that benefit from greater travel, including those involved in aircraft maintenance and leasing, or duty free," he adds. "Airlines are a bit too cyclical and risky so I try to find ways to get steadier earnings streams."

Mr Pidcock does not expect to make many changes to the fund's holdings this year. He says the current set of holdings should be in tune with the market if momentum carries it higher, but also defensive if things go the other way.

“The fund feels balanced and it’s right for this environment," he explains. "I am not taking huge bets, but it is also not just a portfolio of bond proxies.”

 

Jupiter Asian Income (GB00BZ2YMT70)

PRICE138.05p*MEAN RETURN12.62%*
IA SECTORAsia Pacific ex JapanSHARPE RATIO0.69*
FUND TYPE Unit trustSTANDARD DEVIATION11.72%*
FUND SIZE£595mONGOING CHARGE0.98%
No OF HOLDINGS30YIELD3.80%
SET-UP DATE02/03/2016MORE DETAILSjupiteram.com/UK
MANAGER START DATE02/03/2016  

Source: Jupiter Asset Management as at 31/03/2019, *Morningstar as at 23/04/2019

 

Performance

Fund/benchmark1-year total return (%)3-year cumulative total return (%)
Jupiter Asian Income14.3047.32
IA Asia ex Japan sector average4.7958.08
FTSE World Asia Pacific ex Japan index5.8349.28
MSCI Asia ex Japan index5.7851.78

Source: FE Analytics as at 18/04/2019

 

Top 10 holdings as at 31/03/2019 (%)

Sands China6.4
The Link REIT6.0
Samsung Electronics5.7
Taiwan Semiconductor5.3
Ping An Insurance4.3
Macquarie4.1
Hon Hai Precision4.0
NWS3.6
DBS3.6
Tencent3.5

Source: Jupiter Asset Management

 

Geographic breakdown as at 31/03/2019 (%)

Australia23.9
Hong Kong21.7
Singapore14.9
Taiwan12.8
China10.1
South Korea9.0
UK3.3
India2.0
Other2.4

Source: Jupiter Asset Management