About The Fund

We believe the rise of the new middle class in Asia and the corresponding growth in consumption will be a multi-decade phenomenon, offering significant potential for companies serving these new Asian consumers to grow over the coming years.

Halo, investment advisor for the VT Halo Global Asian Consumer Fund, seeks to capture the benefit of the rapid industrialisation and growth of a new middle-class across Asia, the world’s most populous region.

Investment Philosophy

  • Companies in the West, across-sectors, with substantial (35%+) exposure to Asian consumption and valuable intellectual property
  • Companies in Asia with strong brands or in sectors with high barriers-to-entry
  • Asian Companies controlled by, and run for, Governments (that dominate the Asian ex Japan Index)
  • Asian companies dependent on Western demand
  • Sectors susceptible to over-capacity

Our Philosophy

We are aiming to ride the wave of income growth of the emerging Asian economies over the next few decades with a particular focus on countries in the developing stage shown in the lower half of the income S-Curve (see graph on the right).

Whilst some countries are already further along the maturity curve, others are just getting started. China and Thailand are perhaps the most advanced, with Indonesia, India and the Philippines following close behind. As the economies of Vietnam, Cambodia, Myanmar and others advance, we expect to invest in these emerging Asian economies too.

A key point of differentiation for us, as an Asian fund that is trying to beat an Asian index, is that we do not invest in companies listed in the more mature economies of Hong Kong, Singapore, Taiwan or South Korea, unless they derive a significant amount of their sales from the emerging Asian economies.


S-Curve for Income Growth Source: IMF World Bank, Morgan Stanley Research

Our Focus

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.

Chinese manufacturing and non-manufacturing PMI's Source: World Bank, Bernstein

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.

Chinese economy by sector and Chinese energy intensity: 1965-2013 Source: World Bank, Bernstein

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.

Volume growth of consumption sectors Source: Bernstein

Investment Horizon

A lot of fund management houses talk about being long term investors, but often their time horizons have become a lot shorter, especially in more volatile times. Given the rise of the middle class in Asia is a multi-decade event and recognising that our investment companies’ own time horizons are typically 5-10 years or longer, we wish to invest alongside them with similar time horizons.

It pays to have a long term time horizon with a belief that if a company delivers earnings growth year after year, its share price over the long term will closely correlate with its earnings. There will always be bouts of volatility driven by fear and greed, but in the long run equity returns are driven by earnings and dividend growth.

As can be seen in the chart on the right, the earnings of Tencent, the Chinese gaming and social media company, are up some 400% over a 6 year period and the share price has also produced similar returns. The share price occasionally deviates away from the earnings trend as the market becomes too enthusiastic or bearish and this is when we will either trim or add to our holdings respectively.

Source: Thomson Reuters

Expected Returns

We aim to deliver a total return (gross of fees) of 8-12% pa through an investment cycle. We are prepared to ride the up and downs of short term volatility of a stock, if we believe the company’s business model can deliver the returns we require on a medium to long term time horizon.

Risk Warning: The Fund is subject to normal stock market fluctuations and other risks inherent in such investments.  Past performance is not a guide to future returns.  The value of your investment and the income derived from it can go down as well as up, and you may not get the money you invested.  You should therefore regard your investment as a medium to long term investment.