Schroders' Robin Parbrook has said investors have been misled into buying Asian equity ETFs to benefit from the rising middle class story, which can really only be accessed through a small number of specific stocks.
Speaking at a Cazenove Capital conference, Parbrook, who is co-manager of the $4.2bn Schroder ISF Asian Total Return fund, said many investors were investing in passive Asian products to benefit from the rise in consumption, but he highlighted the MSCI Asia ex Japan index only has a minimal weighting to these types of stocks.
"People were mis-sold Asian equity [ETFs] on the premise of improving economic growth and rising Asian consumer spending. But the problem is 50% of the index is cyclical stocks, then mostly financials, real estate and state-owned enterprises," he said.
"The part you are supposed to be buying is only a small part of the index. You would be better off buying exposure to Louis Vuitton and BMW if you want to benefit from the rising middle class.
"The worst product you can buy is an Asian ETF, as an excessive focus on the top down does not work in Asia."
Parbrook said he preferred to take a bottom-up approach and currently favours tech hardware stocks and banks, which remain "relatively attractive" versus historic trading ranges.
Technology makes up 30% of his fund while financials exposure accounts for 19%.
He also remains positive on technology giants Tencent and Alibaba, despite soaring share prices seen last year, and is looking to increase his weightings again after taking profits when the stocks reached their target price.
The fund has 4.4% in Tencent and 3.5% in Alibaba but Parbrook would like 5% in each in due course.
"We took money out of these stocks as they hit their target price but they are reaching interesting levels again. Tencent is the best company I have ever analysed," he said.
"They are unlikely to face the same regulatory backlash on data as we are seeing affect Facebook and Google.
"However, the quid pro quo is they are beholden to the government so there is a risk they will be stopped from making so much money."
The Schroder ISF Asian Total Return fund has returned 18% over one year to 2 May, according to FE, versus returns of 10% by the IA Specialist sector.
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