We were recently lucky enough to have the legendary fund manager Angus Tulloch visit our London office. As you would expect from a veteran manager with a stellar track record, he gave us an incredibly insightful and informative update on Asia and the Global Emerging Markets.
The fund’s approach
Tulloch doesn’t shy away from the fact that he is a conservative manager – he hates to lose money, even when playing bridge – adopting an absolute return approach to investments. Although these markets are higher risk, his five star rated First State Asia Pacific Leaders fund takes a more cautious approach compared with many other funds within the sector.
While based in the Edinburgh office himself, Tulloch is supported by a large and well-resourced team in Hong Kong and Singapore. Corporate governance is high on the team’s agenda and they actively engage with management on both direct business and socially responsible practices. He focuses on high quality, shareholder-friendly companies and he typically has a long investment horizon. A rigorous, bottom-up investment process takes the macroeconomic environment into account, paying particular attention to the long-term earnings growth of a company.
- An expert fund manager in this region backed by a large and well-resourced team
- Conservative investment approach*
- Active engagement with company management, with emphasis on corporate governance and socially responsible practice
*Please note this is a high risk fund.
Following our offer to ask Angus Tulloch a question we received a great response from clients. Below is a selection of the most common topics raised, which we discussed in our meeting.
Is India’s recent stellar performance sustainable?
Over the past year in sterling terms the Indian market is up around 40%. The portfolio has had upwards of 20% exposure to India during this period so Tulloch is understandably pleased.
Tulloch and his team like the changes India’s new Prime Minister, Narendra Modi, is fighting for. Modi is up at 5am talking to civil servants, road projects that were jammed for years are now on track and he is attacking issues such as land reform, sales tax, privatisation, infrastructure and foreign direct investment head on. There are of course a string of upcoming Indian by-elections but there is certainly still potential for low-hanging fruit to be picked from these improvements.
What are Tulloch’s views on the current state of China?
He explained that China has been an area of concern for some time, especially with respect to corporate governance and this is reflected in the underweight position within the portfolio.
Tulloch’s view is that quality companies are hard to find and shadow banking is a serious issue. After impressive growth, the cracks in the model are beginning to show. The economy has matured since the age of mass production at super-low prices – employees expect better pay and are less willing to work long hours so the labour market is another concern.
This has manifested as rising dissent and there is increasing pressure to reduce corruption. There is a palpable desire for a tougher rule of law to be introduced, along with efforts to improve environmental standards. China’s ostentatious behaviour is beginning to be scaled back but how successful this will be and the impact it will have on a slowing economy is not certain.
How does the fund reflect current market conditions in Asia?
Tulloch’s cautious view focuses on management integrity and sustainable cash generation. The fund currently has significant exposure to consumer staples, healthcare and telecoms. The Chinese labour market is a good example of this methodology – wages have increased significantly which obviously poses challenges to production costs but this has resulted in a growing middle class enjoying the lifestyle that comes with it. Healthcare, telephony, cars and the like are all growing on the domestic front and these consumer staples are sustainable and relatively predictable. In fact, the only two Japanese companies that appear in the portfolio produce childcare products that are mainly exported to other countries in Asia which is a big reflection of the growing changes in lifestyle.
Financial sector holdings are conservative, but, according to Tulloch, it should be noted that many Global Emerging Market banks have better stewardship than their Western counterparts. An example he gives is Oversea-Chinese Banking Corporation. Based in Singapore, it takes a very sensible approach which, when it comes to banks, Tulloch and his team see as a good thing. It is also accessing areas that are currently under-banked such as Indonesia which gives it a strong, sustainable edge.
How does Tulloch manage to keep his finger on the pulse of Asia while based in Edinburgh?
With an impressive team based in Hong Kong and Singapore the internet lets you be anywhere you need to be whenever you need to be there. Tulloch explains that video meetings occur regularly with the teams in Asia who live and breathe the investment environment.
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