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The long-distance runner

First State’s defensive style of running its Asia Pacific Leaders makes it a contender for being a fund for all seasonsIwould not care to estimate how many fund managers I have met over the years but the number clearly runs into hundreds. During that time, many have impressed me, many have left me ambivalent and there have been those that I considered sub-standard. I always think a true test is whether or not I have the conviction to invest my own money in a fund.

Obviously, I cannot invest with every manager I like, so those I pick are the ones I consider to be the best of the best. One team that belongs in this category is the First State Asia and global emerging markets team.

Led by the redoubtable Angus Tulloch, the team exudes quality. Last week, I had the opportunity to meet Alistair Thompson for the first time and I have to say I was impressed. Alistair is deputy head of the Asia Pacific team and has been with First State for over five years. He is co-manager of First State Asia Pacific leaders fund.

Many of you will be familiar with First State. It manages its Asian and global emerging markets funds with a view to controlling downside risk. It is looking to invest in companies with quality management and sustainable growth while cashflow is also an important factor. It is relatively frugal and does not like overpaying for companies.

A few years ago when we were in the middle of a raging Asian bull market, some commentators questioned First State’s lacklustre performance. I think this shows a lack of understanding of how First State manages money. Its defensive style will almost certainly underperform in a bull market. However, in flat or declining markets, it will generally outperform due to the style of company in which it invests.

Some clients may grow dissatisfied but you are definitely best sticking with it through thick and thin. For further evidence, look how well its greater China growth fund has done compared with its peers, both during the recent falls and over the long term. First State’s approach works.

First State has made some good calls over the last year. For example, it reduced its banking exposure from the beginning of 2007 although Thompson was quite candid in admitting that this was slightly fortuitous. The team had a meeting with the chief finance officer of Standard Chartered, who was unable to quantify its exposure to collateralised debt obligations. First State took the view that if he did not know, there could well be problems ahead for the Asian banks.

More recently, the team has looked at increasing its direct Chinese exposure which currently stands at only 4 per cent. Its view is that there are many consumer stocks that are historically cheap although banking stocks are still too expensive.

It has also become more keen on Taiwan. Despite many companies being technology-related – an area First State normally avoids – many companies are trading at record lows and paying dividends in excess of 5 per cent. In addition, relations with China appear to be thawing, which should have a positive impact on the market. As an example, there are now some direct flights from Taipei to Beijing.

Despite the volatility of the last nine to 12 months, I do believe in the long-term prospects for the Asia Pacific region. Whatever happens, I simply cannot see how Asia can fail to grow over the long term at a faster rate than more developed regions. I am just as certain that there will be volatility along the way.

First State Asia Pacific leaders is one for all seasons – a fund that will capture most of the upside but should not have the downside risk of many other funds.

Ben Yearsley is investment manager at Hargreaves Lansdown

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