Portfolio Update Hero

7IM Multi Manager Changes: Asia Pacific

01 Aug 2016

Tony Lawrence, Investment Manager

Our view of Asia continues to validate itself. Recent events though have led us to refocus our attention and make some changes to the fund selections we hold in our Multi Manager fund range. We explain what those changes are and why we are making them.

Our shift to an overweight position in Asia was made in October 2014 as part of our broader Emerging Markets allocation. By the start of 2015, we added specific allocations to China and India. At the time, the oil price had begun to decline and we wanted to avoid economies dependent on oil exports, and to prioritise those benefiting from cheaper oil imports. Subsequently, it also became clear that Asian nations benefit from relative political and economic stability versus the other major Emerging Market economies of Brazil, Russia and South Africa.

We now feel it is time to enhance our Asian investment approach. With the UK voting to leave the EU, consequent negotiations and repercussions may provoke volatility in the currencies and stockmarkets of the nations around the table. Asia’s relative immunity from these events provides an attractive investment proposition in its own right.

Asia, meanwhile, has furthered its own strong investment case given its role as the world’s main manufacturer of the technology hardware and capital goods. These are consumed by the region’s own burgeoning middle class and by consumers in the US and Europe, where continued economic expansion is encouraging news.

Our two specific country tilts within that overall Asia allocation also continue to make sense. We believe that the involvement of international investors in China will increase rapidly over the next few years – combining nicely with the rise of the domestic Chinese consumer. Our exposure to India looks to tap into rapid domestic growth rates that we believe are sustainable for the medium-term.

To date our active investments in the region had been principally through the broad brush approach of the Invesco Perpetual Asia Fund, which we have now sold. With the proceeds from the Asia Fund, together with the profits from rebalancing the Blackrock Asian Growth Leaders and the Goldman Sachs India Equity funds, plus the proceeds from the sale of half of our futures positions, we have been able to allocate to the following funds:

Invesco Perpetual Hong Kong & China

With around half the number of holdings of the broader Invesco Perpetual Asia fund (33 versus 57) we believe this more focused fund will be able to take full advantage of China’s increasing acceptance into the world’s global economy. Its Hong Kong exposure is also fully geared towards its special relationship with the Mainland. An example of why we felt this fund stood out was the manager’s opportunistic approach to Chinese banks in which the manager’s local knowledge is used to advantage.

We are now holding positions that range between 1% and 3% across our risk rated portfolios.

Hermes Asia Ex. Japan

With its holdings range between 45 and 60 stocks, this manager takes a very contrarian view to the region, buying stocks that are out of favour and therefore attractively priced. He uses a bottom up, stock picking methodology with a skew towards a value style of investing that balances with our other investments, including the Mirae fund (see below).

Our holdings across our portfolios are between 1.4% and 2.5%

Mirae Asia Great Consumer

Launched in June 2011, this fund is specifically aimed at taking advantage of the spending patterns of the estimated 1.98 billion1 members of Asia’s flourishing middle class and the robust projected growth in their wealth. To capture the long-term consumption trend, the management team takes a bottom-up approach to screen the investment universe of around 1,000 stocks, carefully selecting the 30-odd names that will end up in the portfolio. The fund has a thematic bias and higher levels of volatility, providing in particular an excellent complement to the newly-acquired Hermes fund.

Across the portfolios, we have allocated between 1.4% and 2.5% of our assets.

Tony Lawrence
Investment Manager

1 The Brookings Institution, "The Emerging Middle Class in Developing Countries", 2010

The funds referred to above will not be suitable for everybody and do not constitute an investment recommendation. Please consult an adviser before making a decision to invest. The actual portfolios may vary and all data is subject to rounding. There may be occasions when the overall total of assets shows as more than 100%. This will be because we have an allocation of futures, options or forwards to one or more asset classes. For more information call 0207 760 8777 or visit www.7im.co.uk where the full details of our performance are also available. 

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Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.

The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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