Best Asia Pacific Equity Fund: Winner

We spoke to the winning managers and asked them about their strategies. Here is an edited excerpt:

Question: How was the portfolio positioned to navigate the coronavirus-driven market volatility in 2020? Were there any particular holding(s) or theme(s) that drove the fund’s performance for the year?

Answer: During the COVID-19-induced market sell-off, we increased portfolio exposure to dividend growth stocks whose long-term business fundamentals remained sound despite the pandemic disruption. Thanks to the relative success of virus containment of North Asian countries, these stocks recovered swiftly and led the subsequent market rally in 2020. In particular, our holdings in Chinese healthcare stocks, Taiwanese and South Korean semiconductor stocks, and Chinese A-share consumer stocks were among the top performers for the year.

Question: Against the backdrop of (i) the vaccine rollout, (ii) a new US administration, and (iii) ongoing monetary easing globally, what is your outlook for 2021, and how are you expressing these views in your portfolio?

Answer: We think the pace of economic recovery in Asia could gain pace in 2021, and the scope of recovery could broaden beyond China. Within the portfolio, we recently increased allocation to smaller markets such as Vietnam and Malaysia, where we see better risk/reward opportunities. In terms of sector exposure, we increased allocation to cyclical businesses including financial and industrial stocks, whose earnings recovery could benefit from economic rebound.

Question: What are the top risk factors that could have an impact on your portfolio, and how are you positioned to mitigate these potential risks?

Answer: Monetary policy direction and its impact on market-liquidity conditions is a key risk factor we monitor. We try to mitigate such risk by diversifying sources of growth across geographies and sectors and by striking a balance between structural growth, cyclical recovery, and steady cash-flow holdings. We have been very aware of the monetary-tightening risk, thus added our exposure to the financial sector, which could benefit from steepened yield curve starting from Q4 last year.

Question: How is your investment team organised? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?

Answer: The structure, organization, and decision-making process of our investment team is centered on a team-based approach, where investment decisions are developed in a highly collaborative manner, involving close interaction between portfolio managers, analysts, strategists, and traders. The Portfolio Management team consists of Yu Zhang, CFA, who as lead manager has overall responsibility for investment decisions, and is supported by Robert Horrocks, Ph.D., Sherwood Zhang, CFA, and Joyce Li, CFA as comanagers on the strategy. The team is able to leverage the expertise of the broader investment team for company research and due diligence. There have not been any team changes to the Asia ex-Japan Dividend strategy over the past year. However, we are always looking for talented investors.

Question: Where do you feel that the investment team or the investment process can be improved upon in the future?

Answer: We regularly review our investment team processes to further enhance research collaboration across different investment strategies within Matthews Asia.