About The Fund

We focus on companies that serve Asian consumers, either by selling goods directly to them or by selling them services.  We are particularly keen on service sectors such as education, health care, travel, advertising, on-line services and financial products. We aim to capture consumer spending across all income segments.

As economies develop, services tend to form an increasing share of GDP and are an important focus for the fund.  If one looks at the non-manufacturing PMI survey (services) for China, you will see how steady it has been over the last couple of years (see chart on right). This is despite what you might read in the press or the views of other commentators. Yes, industry and in particular heavy industry has been having a tough time, but these are areas that are not directly affected by consumption. The index shown in the grey columns, has remained resolutely in the 53-54 range, indicating strong growth in this segment of the economy.

What all of the companies that we look to invest in have in common is that they are in industries that are structurally growing faster than nominal GDP. We expect rising volumes and pricing power to enable them to grow their top line revenue above nominal GDP in the country or region.

We believe the ability to increase prices is key, with the power to do this derived from strong brands, intellectual property or operating in consolidated industries where competition is rational.

This is especially key when companies experience cost inflation through rising wages and other overheads, such as marketing and property costs. We expect the companies we invest in should be able to protect their margins and grow profits consistently over time.

We aim to avoid companies that are either not serving the consumer or are prone to bouts of over-capacity with a lack of pricing power. For instance, commodity companies are price takers as evidenced by oil prices. We do not like infrastructure companies for similar reasons and when it comes to property, given the cyclicality and nature of the pricing, we are not inclined to invest in this area.

China is much less dependent on manufacturing than is commonly assumed, with manufacturing declining as a percentage of GDP over the last few years (see chart on right).  With excess capacity due to over-investment, manufacturing companies today typically exhibit poor pricing power and profitability.  By contrast, services are forming an increasingly dominant share of GDP growth and privately run service companies more commonly have pricing power and are showing considerable profit growth and these are attractive for us to invest in.

Whilst China is slowing from the 8% growth rates the world had become used to and perhaps will “only grow at 6-6.5%” in 2016, this is still considerably faster than any other major economy. We recognise that this slowdown in China is structural and that the growth in the future will be of a better quality, as consumption moves to become the dominant contributor to growth.

Retail sales still grew at over 10% pa in 2015 and this has continued into 2016. The graph to the right highlights some of the spending growth, with laptops down, as people move to tablets. Phones are also down, due to overstocking last year as penetration reaches close to saturation. But what this chart does not show is that the value of phones bought is up, as consumers trade up to smart phones.

These trends also apply to the other Asian countries we invest in and as their GDP per capita advances, we anticipate that their economies will also move away from buying the necessities to consuming more services. We expect to follow this trend with the companies we invest in.