Tap into the world’s fastest-growing markets by investing into high quality companies driving sustainable growth outcomes.

 

"We have no macro view, other than to suspect that it is probably quite sensible to lean against unbridled optimism when things are generally so uncertain."

Richard Jones

Meet the manager

A short insight into how Alistair Thompson and Richard Jones, Directors think about life and investing.

About the strategy

A behind-the-scenes look at the investment philosophy for the Asia Pacific investment strategy.

How we invest

 

Diversified and differentiated

The broad Asia Pacific universe provides diversification, while bottom-up stock selection and high active share^ differentiates our portfolios from the benchmark index.

High conviction investments

A focused portfolio of 40 to 70 companies ensures that only the highest conviction investment ideas are included.

Integrated ESG analysis

ESG analysis, shareholder engagement and proxy voting is fully integrated into the investment process.

Investment themes

 

FSSA’s Asia Pacific portfolios are built company by company from the bottom up, with little regard for index positioning.  We are focused on growth in an absolute return* sense and construct portfolios of high quality companies with effective management teams, long-term, sustainable growth drivers and strong financials. With low penetration rates for goods and services, and barriers to entry which protect profits and cash flow, the leading companies in the region have a good track record of compounding earnings and creating long-term value for stakeholders.

Dominant consumer franchises

With favourable demographics and populations that are still growing – particularly in Southeast Asia and India – we believe dominant consumer franchises can offer good growth potential over the long-term.

High quality financials

We believe banks and high quality financials should benefit from similar drivers as consumer businesses: demographics, rising incomes and urbanisation.

Rise in healthcare spending

Many countries are under-invested in healthcare compared to the global average. As these economies become richer, we expect healthcare and health-related spending to rise.

A connected and automated world

As the world embraces a digital future, Asian technology firms should benefit from strong demand and a growing market. At the same time, lower-cost robots allow manufacturers to better automate their processes.

^ Active share is a measure of the percentage of stock holdings in a portfolio that differs from the benchmark
* Absolute return is the return that an asset achieves over a specified period

Case studies

 

Dairy Farm, a leading pan-Asian retailing group, is an example of a dominant consumer franchise. We have been shareholders of Dairy Farm for many years and believe it is a high quality business with a long history of family ownership and long-term stewardship (130 years).

Part of the Jardine Group, Dairy Farm has around 10,000 stores across 11 countries, with a collection of broad retail franchises across much of Asia, including drug stores, supermarkets, 7-11 convenience stores, IKEA and Maxim’s (a joint venture catering and restaurants business). Four of these businesses have performed quite strongly and consistently. However, the supermarkets business and Southeast Asia as a region has been struggling.

CEO, Ian McLeod, joined Dairy Farm almost three years ago to turn the supermarket business around, with a strategic plan, leadership changes and the introduction of centralised multi-brand buying, property negotiation and processing. McLeod has experienced such a turnaround plan before. In 2008, Wesfarmers (in Australia) brought him in to revive Coles supermarkets, which had suffered from years of under-investment and a lack of attention to the basic retail details. With the introduction of new management, new systems and proven retail discipline, the business subsequently recovered and has grown sharply since.

Sales (USD million)

Source: Factset, company reports and FSSA Investment Managers, as at 31 December 2020. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

Taiwan Semiconductor (TSMC) is a core holding across FSSA’s Asia Pacific portfolios and we have been shareholders for many years. We believe it is still by far one of the best ways to capture the rising trend of artificial intelligence, smart devices and the Internet of Things (IoT) in a more connected and automated world.

Established in 1987, TSMC is a dedicated semiconductor foundry (manufacturer). TSMC was the pioneer of the foundry model, which separated semiconductor chip designs (produced by fabless companies) from the fabrication or manufacturing process (outsourced to a foundry). Over the last 30 years, foundries have gained market share from traditional integrated design and manufacturing chip companies. There were two main reasons for this: on the manufacturing side, the process has become more complicated and capital intensive; while on the customer side, more fabless (e.g. Nvidia) and system companies (e.g. Apple) have emerged.

TSMC has become the world’s largest dedicated contract chip manufacturer, with more than 50% market share. Growth has remained strong due to its advanced technology and strategy of being ‘everyone’s foundry’; that is, partnering with instead of competing with its customers. As long as semiconductor demand continues to grow – which we believe likely with devices becoming more complex and requiring increasingly powerful processors – TSMC should continue to thrive.

Growth in earnings per share

Source: Bloomberg, FactSet, FSSA Investment Managers, as at 31 December 2020. All figures in Taiwan Dollars. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers' portfolios at a certain point in time, and the holdings may change over time.

AIA Group is the largest pan-Asia life insurance group, with a presence in 18 markets across the region. We are long-term shareholders and see AIA as an example of high quality financial companies which should benefit from favourable demographics, rising incomes and urbanisation.

The China market presents a sizeable long-term growth opportunity, and AIA has been gradually expanding its footprint by two to three cities each year. In 2019, the group opened new offices in Tianjin & Shijiazhuang – increasing its China presence to five cities across two provinces.

AIA differentiates itself from the state-owned insurers in China by focusing on health protection rather than short-term deposit products; and by hiring highly educated agents from outside of the industry. With their strong reputation in China, they are able to recruit high quality agents - 85% of the newly hired agents have bachelor degrees or above and a large number of them have studied overseas.

Thus, AIA’s productivity is substantially higher than peers, leading to a much higher Value of New Business (VoNB) rate per agent. The China business is already 40% of group VoNB and 20% of its enterprise value, but they have only 1% market share, which suggests there is plenty of room to grow.

Geographic mix of value of new business

Geographic expansion (AIA’s Opportunity)

Source: Bloomberg, Company reports, McKinsey, FSSA Investment Managers, as at 31 December 2020. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

Insights

 

Read the latest investment insights on our strategies and ESG related investment issues from our specialist teams.