Schroder Asian Total Return (ATR)

10/09/2024

Results analysis from Kepler Trust Intelligence

Schroder Asian Total Return (ATR) has released its half year results for the period ending 30/06/2024. The trust saw a NAV increase of 10.1% on a total return basis, which compares to a benchmark return of 9.5%. The AIC Asia Pacific sector average delivered a total return of 10.8%. 

The outperformance was predominantly driven by the managers' technology holdings, including TSMC which benefitted from the expected increase in AI driven demand. The managers' underweight allocation to China, particularly to consumer focussed companies was also a positive.

This was somewhat offset by financials holdings in India, the Philippines and Indonesia, although stock selection was still positive overall. This has further contributed to ATR's considerable long-term outperformance relative to its benchmark, which it leads over one, three and five years.

Robin and King Fuei use econometric models to influence their positioning and risk approach. These models turned from slightly positive to a more cautious outlook. As such, gearing has been reduced and the managers have implemented options strategies to provide some capital preservation.

The managers remain overweight Taiwan and Korea, though have been trimming strong performers. They managers remain underweight China and Hong Kong, due to consumer concerns.

ATR's discount has widened over the six-month period despite the strong NAV performance.

Commenting on the results, Chair Sarah MacAulay reflected on the ongoing performance attribution and that "stock selection will continue to be the critical factor in adding value to the portfolio and securing long term relative outperformance".

Kepler View

Schroder Asian Total Return (ATR) is managed by Robin Parbrook and King Fuei Lee and offers unique Asian exposure due to the managers' benchmark agnostic approach and the use of hedging strategies. The half-year results have reported a period of strong performance, driven by good stock selection, primarily from their technology overweight. TSMC has contributed to this, though the managers have, in our opinion, shown discipline by taking profits on the holding.

The managers have also added some protection to the portfolio, taking indication from their hedging models. This includes a reduction in gearing, and the addition of some protection from market volatility. We believe this is a standout feature of ATR and could appeal to those who appreciate the long-term growth potential of the Asian region but have concerns over short-term volatility.

The current positioning may also appeal to risk-aware investors, in our opinion. The managers are underweight China over weak consumer sentiment concerns. However, they are overweight the region's developed economies, such as Australia and Singapore, which we believe adds defensiveness. Furthermore, they are underweight India on valuations grounds, whilst overweight Indonesia and the Philippines which offer similar traits, such as strong GDP growth, but with more attractive valuations.

Despite the strong NAV performance, the discount widened to 7.0%. The board has been buying back shares to manage this, with nearly 1.8m shares bought back in the six months covered by the results. Over the past five years, ATR's shares have traded close to NAV, including periods at a premium. As such, we believe the current level could be an attractive entry point for long-term investors. Furthermore, the ongoing share buybacks should be supportive in narrowing the discount.

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