Pan-regional focus gives the trust greater flexibility with portfolios
Schroders has altered the way it runs its Far East unit trust to become a pan-regional fund under the management of Richard Sennitt, who took over the portfolio last year.
Sennitt said Schroder Far East, which was run by Elizabeth Soon until October 2001, was previously managed as a Pacific ex Japan fund bolted on to a Japanese portfolio, but that it is now truly pan-Pacific.
Sennitt said: 'I am part of a team running pan-Pacific mandates with just under $4bn of assets under management, principally for European and North American institutional clients. It is our pan-regional focus that enables us to construct portfolios while bearing in mind the full opportunity set of the mandate. This is important as it makes sure that positions, which for instance we might take in technology companies in Japan, are not cancelled out by ones we take elsewhere in the region such as in Korea or Taiwan.'
The fund is benchmarked against the MSCI All Countries Pacific (Free) Index. Although the fund has no specific tracking error ranges set, the portfolio is regularly run through a risk control tool to ensure that risk does not become concentrated into a limited number of areas. The tracking error of the fund is around 6% and Sennitt is looking to run the fund with between 70 and 80 stocks.
Schroder Far East is most overweight in financials but is also overweight IT and healthcare. The fund has a pro-cyclical bias and is zero weighted in utilities and underweight consumer staples.
Within the financial sector, Sennitt particularly likes banks in Korea and Singapore but has a zero weighting in Japanese banks. Sennitt said: 'Korean banks remain at a discount to other regional banks despite ongoing loan growth, an improvement in the outlook for non-performing loans and continuing structural improvements. Our top pick here would be Kookmin Bank which trades on a single digit P/E with a price to book of around two times despite generating a return on equity in the mid 20s. It is dominant in retail loans where loan growth remains robust and the bank will be able to realise ongoing cost savings following its recent merger with Housing & Commercial Bank.'
He added that Singapore banks remain attractively valued and believes they will benefit from the consolidation seen in the sector and the bottoming out of economic growth.
Schroder Far East is overweight IT where Sennitt believes companies will benefit from a bottoming out in the global economy and valuations continue to remain attractive on a global basis.
Within the sector he remains positive on companies that are leaders in their field such as Samsung Electronics in Korea. He has also recently been adding to the hardware areas of technology in Japan which he believes should not only benefit from the better global environment but also the weaker yen.
Sennitt added: 'We also like healthcare, in particular the pharmaceutical companies in Japan. Earnings visibility is relatively high and these companies have been restructuring. Valuations are cheap both against history and in a global context.
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