Schroder AsiaPacific (SDP)

09/12/2024

Results analysis from Kepler Trust Intelligence

·      Schroder AsiaPacific (SDP) has published its results for the financial year ending 30/09/2024. Over the period, the trust saw its NAV increase by 16.5% on a total return basis, versus 17.3% for SDP's benchmark, and 15.9% weighted average for the peer group.

·      Performance has largely been driven by stock selection. The holdings in Taiwan, primarily tech companies, were the biggest positive contributors. Philippines was also a positive, as was Indonesia, benefitting from an improving macro backdrop.

·      Stock selection in India was a drag due to small and mid-caps driving the market. China and Korea stocks were also detractors, although underweight allocations were a positive.

·      The managers took profits in strong performers and rotated elsewhere. Examples include trimming TSMC are rotating into other technology names, such as E Ink and ASE Technology.

·      The managers slightly narrowed their underweight to China, by selectively adding to high quality-stocks at attractive levels. They remain notably underweight, preferring Hong Kong to balance allocation risk whilst focusing on quality companies with good governance.

·      The annual dividend has been increased to 12.5p per share and is fully covered by revenue. This equates to a yield of 2.3% based on the closing share price on 02/12/2024.

·      The discount widened in the period, and the board undertook significant share buy backs.

·      Chairman James Williams believes the trust, "is well positioned to capitalise on the region's growth opportunities, while managing risks carefully," and that, "Asia Pacific remains an engine of global growth, with robust domestic consumption, technological innovation, and an increasingly affluent population."

Kepler View

These results saw strong absolute returns from Richard Sennitt and Abbas Barkhordar, managers of Schroder AsiaPacific (SDP). Whilst relative performance was slightly below the index, stock selection still contributed to returns, and the outlook for the region has improved materially.

Positive stock selection primarily came through tech, including key holdings in Taiwan. The sector has enjoyed positive dynamics and we believe the overweight could continue to benefit performance. The trimming of profits and rotating elsewhere, is a good example of portfolio discipline in our opinion.

We believe this discipline is also evident in the country exposure. The managers have slightly reduced their China underweight through highly selective additions to quality, market leading companies. Instead, they prefer Hong Kong, offering similar exposure but fewer governance issues. Conversely, they are underweight India on valuation grounds. This has been a detractor in the past year.

Despite good absolute performance and an improving outlook, the discount widened over the year. Long-term NAV returns are strong, over ten percentage points ahead of the benchmark over five years to 02/12/2024, largely as a result of good stock selection. To our mind, the discount doesn't reflect this long-term success, nor the improving macro backdrop and therefore could prove an attractive entry point for long-term investors, in our opinion.

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