Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
At Barings, our Asia ex-Japan strategy aims to deliver long-term capital growth by drawing on over 35 years of experience managing dedicated Asia Pacific equities. Through our differentiated investment process and commitment to fundamental analysis and bottom-up company research, we seek to identify compelling investment opportunities across the asset class.
Our investment philosophy reflects our understanding that equity markets are both inefficient and risky. We believe that inefficiencies are greatest at the stock level—and that over the long term, active managers can achieve attractive, risk-adjusted returns through a disciplined, bottom-up, stock selection process and a risk-aware, portfolio construction process.
Our approach is anchored in our Growth at a Reasonable Price (GARP) philosophy. We seek to identify companies which we believe are mispriced on a longer term basis, based on our understanding of management strategy and the potential for the company to improve returns and grow earnings. We value companies on a long-term basis, utilizing proprietary valuation models that incorporate ESG analysis and macro considerations.
We have a well-resourced Asian equity investment team of 15 on-the-ground investment professionals, with varying backgrounds, based in Hong Kong, Shanghai and Taiwan. We believe this provides a good mix of experience and therefore diversity of viewpoints—which are key to identify hidden gems and unrecognized opportunities in a dynamic region.
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
Through our disciplined and consistent bottom-up investment process, we were able to remain anchored and navigate through the market turmoil of last year. Our approach to portfolio construction and risk management ensured that our strategy was not excessively vulnerable to any downside risks posed by the Covid-19 outbreak and other macro factors, relative to the broader market.
Rather than raising cash levels in response to the market sell-offs, we viewed the corrections as opportunities to purchase well-positioned companies at attractive prices. We built up positions in companies with quality fundamentals and exposure to structural growth trends. We further refined our portfolio positioning by building our conviction in dominant franchises that we deemed to be long-term beneficiaries of structural trends—many of which have been accelerated by the pandemic and, in our view, could continue growing. Among these trends are the shift in consumer behaviour across Asia and the enhanced technological ubiquity.
Our Asian equity strategies outperformed by over 20% relative to the respective benchmarks during 2020. We will continue to be guided by our consistent investment approach and focus on the longer term growth potential of investment opportunities, despite near-term challenges.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We believe the following secular growth themes will continue to create opportunities in Asian equities:
Evolving Lifestyle and Societal Values
- Millennial/Gen Z consumption is expected to lead and shape future consumption trends in Asia. As a result, we believe that understanding these consumption preferences and habits will help us identify which companies are best positioned to grow with Asia's most influential consumers.
- Governments' carbon neutral targets, shareholder activism, and the increasing sustainability efforts by consumers—including the more socially and environmentally conscious Gen Y&Z—will likely result in increasing demand for renewable products. In our view, companies with exposure to this space will likely benefit from a more attractive cost of capital going forward.
Technological Ubiquity: Digitalization & Connectivity of Everything
- The world we live in is becoming increasingly digitalized. Asia's dynamism means it both leads and lags in the age of the digital economy, providing a spectrum of investment opportunities.
- Sectors including e-commerce, online gaming and cloud computing have benefited in the past year. We expect this theme to continue, and companies that are directly or indirectly exposed to such sectors look poised for an acceleration in earnings growth.
- In our view, U.S.-China tensions have started an irreversible supply chain bifurcation trend, and there will be beneficiaries of this shift—particularly for countries and companies in ASEAN and India. Against the backdrop of a less conducive export environment, China's ‘domestic circulation' strategy suggests that select domestic champions in China will gain from this policy shift to drive growth more domestically
The value of any investments and any income generated may go down as well as up and is not guaranteed.