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Hunting for growth in 2020 - The UK, Japan and Asia offer investors attractive options

Posted by Adrian Lowcock in Press releases category on 24 Feb 20


  • Fund picks include First State Asia Focus, Merian UK Smaller Companies and Baillie Gifford Japanese Income Growth 
The UK, Japan and Asia are three attractive themes for investors to consider in the current ISA season, according to Adrian Lowcock, Head of Personal Investing at Willis Owen, the online investment service provider.

Over 3 years the MSCI ACWI ESG Universal index has delivered 36% compared to 35.% for the MSCI World, whilst in the UK the Cboe UK 100 (a proxy for the FTSE 100) has returned 15.8%. 

Lowcock believes all three markets now look attractive versus other regions like the US, and have the potential to deliver strong performance this year as investors look for alternatives to record high US shares.

“The US was the story of 2019, with the pro-growth, low tax agenda pursued by the President continuing to reward investors,” he said.

“European equity markets also outperformed, and although there are some clear headwinds for the UK, Japan and Asian markets broadly, the discount to other developed markets means they should not be overlooked.”

Below Lowcock identifies some preferred picks in these regions.

First State Asia Focus - Martin Lau and his team apply a tried and tested company selection process, which looks for quality businesses that deliver sustainable growth at attractive valuations. This fund invests predominantly in the Asia Pacific region, though it can invest as much as 20% elsewhere. Lau adopts a pragmatic, medium to long-term investment approach with a flexible style that will adapt to prevailing social and economic conditions. Company visits are of paramount importance. Capital preservation is considered to be the foundation for long-term capital gains, so the fund aims to produce an absolute return with a sensible balance between risk and return. 

Dairy Farm is currently held in the fund. It is a leading Asian retailing group across 11 countries. It has a long history of family ownership, which along with a robust management team, makes considered and responsible decisions about the business. Chipmaker Taiwan Semiconductor is also held in the fund. It generates plenty of cash and has increased the dividends it pays to shareholders in recent years.

Merian UK Smaller Companies - Merian have one of the most highly regarded small and mid-cap teams, headed by Dan Nickols who is the manager of this fund.  He looks for companies that demonstrate at least one of the following characteristics: the ability to grow earnings faster than the market average for an extended period of time; the scope to generate a positive surprise; or the potential to be re-rated relative to the market. Nickols will also pay attention to what is going in the economy and uses his experience to judge how this filters down to company performance. He is also willing to hold onto his winners as they grow into larger companies. 

The detailed analysis the team conducts has led to conviction in investments such as the online retailer Boohoo, which had a strong Christmas period. Other holdings include the fund manager Liontrust Asset Management and the mortgage lender OneSavings Bank.

Baillie Gifford Japanese Income Growth - The fund aims to outperform the Topix index over rolling 5 year periods while delivering a superior yield. It is co-managed by Karen See and Matt Brett, supported by nine other Japan specialists, each with sector responsibilities. Stock selection is paramount and the managers study industry trends and themes such as technology and demographics. The current yield is modest, at around 2.3%, but there is scope for this to increase as Japanese companies adopt a dividend-paying culture. The emphasis is on those with strong balance sheets and commitment to growing dividends. Fees are competitive versus peers and we think this fund is a sound option for core Japanese equity exposure.

Technology plays a significant role in the portfolio with top 10 holdings in Softbank and GMO Internet. The fund is very diverse with Denso Corp, the autoparts supplier, the largest holding accounting for 3% of the fund. 

1 Source: FE Analytics. Total Return in pounds sterling. 20th February 2017 to 20th February 2020.