HEAD-TO-HEAD: First State Asian Equity Plus vs Schroder ISF Asian Equity Yield

Added 30th January 2015

Head-to-Head puts equity income strategies from First State Investments and Schroder Investment Management against each other.

HEAD-TO-HEAD: First State Asian Equity Plus vs Schroder ISF Asian Equity Yield

Fund houses have been seeing significant investor demand for income products the last few years and many expect the hunt for yield to continue in the low interest rate world.

Recent independent surveys by fund houses have also showed investors’ increasing interest in dividend-yielding products.

This is also one of the themes for Fund Selector Asia’s forums coming up in February.

Against this backdrop, we take a look at two well-known funds that have been in existence for more than a decade: the First State Asian Equity Plus Fund and the Schroder International Selection Fund Asian Equity Yield.

The Ireland-domiciled First State fund was incepted in July 2003 and had assets under management worth $2.5bn on 31 December.

The Luxembourg-domiciled Schroders vehicle was launched a year later in June 2004 and had $2.4bn in assets under management.

Most market analysts expect market volatility to  increase. Which of these two funds will be able to limit downside risk?

Germaine Share, manager and research analyst with Morningstar Investment Management Asia, provides a comparative analysis. 

Investment strategy review

Morningstar has a positive view on the First State investment process, which takes into consideration the company’s management history, track record, corporate governance, and other fundamental factors for making investments.

“Even though First State does invest in above average dividend-paying firms, their main focus is to find quality companies that deliver sustainable growth. 

“They will not sacrifice quality for growth. This may result in the overall portfolio dividend not being that much higher than the benchmark.”

As per the December-end fact sheet, the First State fund had invested in a total of 64 holdings in its portfolio with the top 10 companies accounting for nearly 30% of its assets.

The top five holdings are Cheung Kong Holdings, Taiwan Semiconductor, OCBC, Dabur India and Link REIT.

In regards to the Schroders fund’s investment process, portfolio manager King Fuei Lee classifies stocks into three buckets, Share said.

“These three buckets are: ‘Dividend Cows’ which means stocks that provide a steady dividend stream; ‘Dividend Growers’ - those with a rising dividend stream driven by earnings growth; and ‘Dividend Surprises’ - those with a rising dividend stream driven by a catalyst that would improve payout ratio.”

Share added that the stocks that constitute “Dividend Surprises” are limited to 10% of the portfolio at most, while the other two buckets are maintained largely at equal weights to minimize volatility across the full market cycle.

The Schroders fund has a total of 56 companies in its portfolio and its top 10 holdings also account for nearly 30% of the assets.

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