PICTET ASIAN EQUITIES EX JAPAN: Asia fund finds the best ideas

PICTET ASIAN EQUITIES EX JAPAN: Asia fund finds the best ideas – then bets big

Investment fund Pictet Asian Equities ex Japan is very much a best ideas portfolio, comprising shares in companies the asset manager believes will perform strongly over the coming years. 

Unlike other funds it doesn’t favour particular investment sectors or try to shadow any index. Instead, it draws on an extensive team in London to identify the best share ideas – with country specialists and research analysts based in Shanghai and Hong Kong. Some 1,200 listed companies are on its radar, but only a minority end up in the portfolio. 

The result is a fund with a lot of conviction in the stakes it takes – in crude terms, it bets big. The £1.2billion portfolio comprises 40 stocks with the top 10 holdings accounting for just short of half of the fund’s assets. Getting the bets right is therefore key. 

So far, the fund’s big bets have paid off, although not spectacularly so. Since launch in October 2017, it has delivered modest returns of some 32 per cent, outperforming its benchmark index, the MSCI AC Asia Ex Japan, which has produced a return of 23 per cent. 

Although the fund is managed b y Pictet’s emerging equities team, it’s not strictly an emerging markets fund. It has key holdings in the developed market of Hong Kong – such as life insurer AIA and consumer shopping platform Meituan – as well as big positions in the emerging markets of China and Taiwan.

Most of the fund’s stakes are also in leading global firms: the likes of Taiwan Semiconductor Manufacturing Company and South Korean giant Samsung Electronics – companies that are represented in the MSCI AC Asia Ex Japan Index. 

So, the fund is not about unearthing hidden investment gems that other managers have missed. Instead, it’s more focused on identifying best in class companies and then backing them to succeed.

It’s a modus operandi that Kiran Nandra, head of emerging equities management at Pictet, is keen to explain. ‘Our whole focus is on stock picking,’ she says. ‘We’re active managers and our objective is to put together a portfolio that will beat its benchmark. That means being overweight in companies we like. It also means we invest irrespective of where the companies are listed. If it’s a good business, we invest in it.’ Currently, most are listed in either China or Taiwan. 

There are common characteristics among the holdings. Most are cash generative businesses that Pictet believes the market currently undervalues. They then tend to fall into two camps – businesses that are either ‘structural growers’ or at an ‘inflection’ point. Structural growers, says Pictet, are likely to produce above average market returns in the mid to long term. Companies at an inflection point are typically those where earnings are depressed, but are about to take off. 

Pictet Asian Equities ex Japan is a fund without any real surprises. It’s primarily a blue chip portfolio invested in one of the world’s strongest growth regions. Although Nandra accepts the region has its geopolitical tensions, it’s not a consideration in constructing the portfolio – holdings in Taiwan and China sit side by side.

It’s also not particularly bothered about the Chinese state laying down laws that temporarily cramp the business activities of leading companies such as Tencent and Alibaba – hence its holdings in both. Nandra believes the companies have learnt to adapt and so will continue to make profits. The fund’s annual charges are a tad over one per cent. Investors should opt for the share class denominated in pounds.