Schroder Asia Pacific: March 2025 investment trust update

• A portfolio of high-quality companies operating within Asia

• Richard Sennitt is a veteran investor with three decades’ worth of experience

• Schroders have invested in a large team of analysts across the region for the managers to utilise

How it fits in a portfolio

The Schroder Asia Pacific trust aims to achieve long-term growth by primarily investing in large Asian companies from countries such as China, India and Taiwan.

It could be a good option within the Asian portion of a globally diversified investment portfolio. Investments in emerging markets add risk.

Manager

Richard Sennitt has been lead manager of the trust since March 2021 following the retirement of veteran investor and long-term colleague, Matthew Dobbs. Sennitt joined Schroders in 1993 and has a wealth of experience investing in Asian markets having managed the Schroder Asian Income Fund since 2001, as well as a few other Asian income funds that are run similarly.

Abbas Barkhordar also became co-manager in 2021 when Dobbs retired. He joined Schroders in 2007, initially as an analyst on the Emerging Markets Equities team.

Both managers are also responsible for the open-ended Schroder Asian Alpha Plus fund, which is on our Wealth Shortlist and invests in a near identical way. Given the overlap in the investment process and the companies the managers consider, we think they can comfortably handle their workload.

There are thousands of companies in this part of the market, so the managers have the support of a large team of analysts based across Asia. They help sift through the market and uncover what they believe to be the most promising opportunities.

Process

Sennitt and Barkhordar believe that Asian markets are a stock picker’s paradise. Since they tend to be less researched than developed markets there’s plenty of opportunity to uncover hidden gems. They tend to be volatile though and that’s why the managers believe the best way to navigate these risks is by investing in high-quality businesses – but without paying too much for them.

To whittle down their large investment universe, the managers work closely with Schroders' Asian equities team to help generate ideas for the trust. They look for companies they think can sustain returns over the long run. They should have good cash flows, strong franchises, a quality management team, and a strong business model that's able to defend against competition. Next, they aim to forecast the earnings of each business, which could ultimately influence the direction of the share price.

While the managers mainly focus on individual company analysis, they also consider economic factors to provide broader context to their research. This may involve looking at inflationary trends and monetary policy, amongst other factors.

This results in a portfolio of between 55-70 companies. Over half of the trust is invested in financials and technology stocks with significant investments in TSMC – the largest global semiconductor producer, the Chinese technology company Tencent, and the Indian bank HDFC.

Geographically, they invest most in Taiwan and China. But the 21.5% invested in China is less than the benchmark. They also invest heavily in India and Hong Kong.

The managers adopt a long-term perspective when making investment decisions, which often results in minimal changes. Over the past 12 months, they added an investment in Netease, a Chinese communication services company driven by increased confidence in its gaming pipeline. Other new investments include E Ink Holdings in Taiwan and the Vietnamese IT company FPT Corp.

In contrast, the managers sold their investment in the Korean semiconductor company SK Hynix after the stock performed well last year.

The fund managers mainly invest in bigger companies, but they also have the ability to invest in higher-risk smaller companies. They can also use derivatives in managing the trust, which increases risk.

Culture

Schroders is a well-established asset manager with offices all over the world. It believes the importance of Asian and emerging markets in the global economy has increased significantly over the years and expects this to continue. We think Schroders is dedicated to investing in this part of the world and supporting the teams that invest there.

We believe incentivisation for Schroders fund managers and analysts is focused on longer-term performance potential and is therefore aligned with their investors. The Asian equities team is based across the UK and Asia, and this remains an important resource for the group’s range of Asian funds.

ESG Integration

Schroders has invested significantly in ESG (environmental, social and governance) resources and tools in recent years. Each investment desk has access to a variety of data sources that have been brought together into a proprietary platform called SustainEx, which allows investment teams to quantify a company’s positive and negative contributions to society. The Asia team has an additional tool, Context, which analysts use to incorporate ESG when analysing a company. The team also uses three dedicated ESG analysts.

All Schroders funds were required to pass the firm’s inhouse ESG accreditation process by the end of 2020. All new funds must also be ESG accredited, and investment teams must reapply for accreditation on an ongoing basis.

The ESG accreditation process is managed by the Sustainable Investment team. They sit on the investment desk and are objective in their approach. There is a set list of criteria that funds must meet to become accredited, and the process is substantial – no fund has ever gained accreditation on the first attempt. Fund managers are also expected to demonstrate improved levels of ESG integration over time.

The Schroders Sustainable Investment team acts as a focal point for ESG, proxy voting, and engagement. When it comes to proxy voting, Schroders has structured policies in place and is transparent on the reasons proposals have been voted against. On the ESG engagement side, the firm’s activities and outcomes are monitored, tracked and reported in its quarterly Sustainable Investment reports and annual Sustainability reports. There are also a range of ESG-related insight and thought leadership articles available on the firm’s website.

While Schroders have made good progress with respect to ESG, this trust is not managed to a responsible mandate.

Cost

The ongoing annual charge over the trust’s financial year to 30 September 2024 was 0.88%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure.

If held in a SIPP or ISA, the HL platform fee of 0.45% per annum (capped at £45 for equities) also applies. The HL platform fee doesn't apply if held in a Fund and Share Account. As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

Since Sennitt and Barkhordar took over management of the trust in 2021, it has returned -7.36%*. This is below the returns of the MSCI AC Asia ex Japan index, which has grown by 0.09%. Remember, past performance is not a guide to the future.

Over the 12 months to February 2025, the trust returned 14.02%. This was slightly behind the 15.24% returns of the MSCI AC Asia ex Japan benchmark. The trust’s net asset value (NAV) grew by 11.90%.

Over this period, investments in Singapore were among the strongest contributors to growth. Having less invested in India and South Korea than the benchmark also aided performance, as these markets didn’t perform as well. Lower exposure to China than the benchmark was the largest detractor. Performance was also held back by the trust’s investment in Samsung, which struggled as it fell behind rivals in the market for AI-related hardware. DBS Group, a Singaporean bank, and the Chinese technology company Tencent were the top performers.

At the time of writing the trust trades at a discount of 12.58% and has a dividend yield of 2.34%. Be aware that dividend yields are variable and aren't a reliable indicator of future income.