Launched in December 2016, this fund tracks the MSCI ACWI Asia ex Japan sector and looks for a concentrated portfolio of 30-40 stocks based on high conviction ideas.
Mirae said the fund was particularly focused on those stocks which could benefit from the increase in consumption by the Asian population.
In its product disclosure statement (PDS), the firm said: “Asia is currently undergoing rapid levels of industrialisation and urbanisation as well as income growth, wealth accumulation, population growth and favourable demographics, which is leading to the emergence of a new consumer class, whose greater disposable income and purchasing power is leading to a dramatic increase in consumption activities across the region”.
When the fund is compared to the benchmark, one can see its allocations take a different skew to other rival Asia-Pacific funds.
Mirae acknowledged the fund took an off-benchmark approach, which it added could mean the fund underperformed its relative benchmark.
“When researching a company, whether a company maintains or gains sustainable competitiveness and sustainable earnings growth are key to the fund’s buy and sell discipline. The benchmark has little impact on the investments of the fund as the investment manager seeks out the best companies in the best-performing sectors.”
According to its latest factsheet to 31 August, 2019, the fund has 55% of its assets invested in China and 28.5% invested in India. Both of these are significant overweights to its benchmark which has only 38% and 10% in the two respective countries.
Unsurprisingly, the fund’s top 10 holdings are all held in these two countries with six coming from China and four from India. The top weighting is Alibaba at 6.7%, which has grown from being a technology e-commerce site to sit in the consumer discretionary space with over US $352 billion ($513.9 billion) market cap.
As a result of this large allocation to two major countries, the fund is underweight smaller countries such as Hong Kong and doesn’t have any allocation towards Korea, Malaysia, Pakistan, Singapore and Taiwan.
Looking at sectors, the fund’s largest weighting to consumer discretionary and consumer staples, both over 30%. It also holds 18% in financials, although this is less than the 23% held by the benchmark. The weighting to consumer staples is more than five times the sector’s benchmark weighting.
Surprisingly for an Asia fund, it has a zero weighting to technology companies, which is a large constituent of the index at 17% thanks to companies such as Taiwan Semiconductor, Samsung and Tencent.
PERFORMANCE
The fund aims to achieve long-term capital growth by investing mainly in equities of Asian companies which are expected to benefit from growing consumption activities in the Asian region.
However, investors needed to be aware that the uncertain nature of emerging markets combined with the high concentration of the portfolio meant it was riskier and could be more volatile than other funds and had a suggested time horizon of five to seven years.
“There is a risk associated with investing in securities issued by companies domiciled in countries with less developed political, economic and financial systems. Some countries in the Asia region may prohibit or impose substantial restrictions on investment by foreign investors. Additionally, the share price and currency volatility are generally higher in emerging markets than developed markets, and may be subject to greater fluctuation,” the PDS said.
Over one year to 30 September, 2019 it returned 30.3% and over three years, it returned 70.8%, according to FE Analytics. This is compared to benchmark returns of 3.7% and 40.7% respectively and returns by the ACS Equity – Asia Pacific ex Japan sector of 9.5% and 43.3%.
This was a positive for the fund as it had underperformed in the 12 months to 30 September, 2018 with returns of 2.25%, far below the average sector returns of 9.7%.
It peaked during June 2018 and then fell gradually until it bottomed out in October, 2019, reporting a loss of 25% over the period. However, it has since regained this and, from April 2019, has been significantly outperforming the sector.
