Latest trust commentary

Performance overview

• Pacific ex-Japan equities rose over the quarter in sterling terms and outperformed developed world markets in aggregate. 
• Taiwan was the best-performing index market thanks to ongoing strength in the technology sector, especially AI-related stocks. China also gained and beat the index as economic data generally improved, while Singapore was another outperformer.
• Conversely, Indonesia and the Philippines were notably weak. 
• The fund posted a positive return and outperformed the MSCI AC Pacific ex Japan index over the quarter.

Drivers of fund performance

• At the regional level, stock selection was strong in Taiwan, China and the Philippines, helping to offset weak returns in Singapore and Indonesia. Market allocation had a negative effect, with the overweight to Indonesia and the underweight to China hurting performance. The overweight to Singapore lifted returns, however.
• In terms of sectors, while selection was notably positive in financials, this was more than offset by weak returns in communication services. Sector allocation proved to be beneficial, specifically the overweight to information technology, and underweights to health care and industrials, more than offsetting the overweight to real estate.

Outlook/positioning

• Despite the more hawkish outlook regarding US interest-rate cuts, sentiment towards the broader equity markets remains constructive as investors continue to discount a soft landing for the US economy.
• In China, while structural challenges remain, there have been signs of more ‘self-help’ among corporates recently, including on shareholder returns where we have seen a notable increase in buyback activity. Although, we are encouraged by some recent steps from the government to more fully support the property market, further support will likely be required, together with steps to address the low levels of consumer demand. We remain underweight China without a significant change in our positioning, but continue to look for bottom-up opportunities there which have upside to fair value on a medium-to-long-term investment horizon. We retain our preference for Hong Kong, where valuations are generally lower, and shareholder returns historically have been more of a focus for management teams.
• Although dividends have recovered with earnings, there are questions as to where near-term dividend payments will go, given the ongoing economic uncertainties and downward earnings pressure on stocks across the region. This will likely continue to have an impact on dividends in some of the more cyclical areas, as we have seen in resources. The performance of the pound will also affect the level of sterling-denominated dividends received by the fund, with strength over the last year a headwind. However, aggregate corporate balance sheets look relatively robust and company profitability has recovered from the pandemic lows, meaning dividend payout ratios are not extended. In the medium-to-long term, dividends tend to follow earnings.
• We continue with our bottom-up investment approach and look for good companies where we can clearly see a strong income case and the potential for capital growth.

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• China risk: If the fund invests in the China Interbank Bond Market via the Bond Connect or in China "A" shares via the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect or in shares listed on the STAR Board or the ChiNext, this may involve clearing and settlement, regulatory, operational and counterparty risks. If the fund invests in onshore renminbi-denominated securities, currency control decisions made by the Chinese government could affect the value of the fund's investments and could cause the fund to defer or suspend redemptions of its shares.
• Concentration risk: The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down.
• Counterparty risk: The Company may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the Company may be lost in part or in whole.
• Currency risk: If the Company’s investments are denominated in currencies different to the currency of the Company’s shares, the Company may lose value as a result of movements in foreign exchange rates, otherwise known as currency rates.
• Derivatives risk: Derivatives, which are financial instruments deriving their value from an underlying asset, may be used to manage the portfolio efficiently. A derivative may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the fund.
• Emerging markets & frontier risk: Emerging markets, and especially frontier markets, generally carry greater political, legal, counterparty, operational and liquidity risk than developed markets.
• Gearing risk​: The Company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in such investments could be lost, which would result in losses to the Company.
• Liquidity Risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. In difficult market conditions, investors may not be able to find a buyer for their shares or may not get back the amount that they originally invested. Certain investments of the Company, in particular the unquoted investments, may be less liquid and more difficult to value. In difficult market conditions, the Company may not be able to sell an investment for full value or at all and this could affect performance of the Company.
• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.
• Operational risk​: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the Company.
• Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.
• Private market valuations, and pricing frequency: Valuation of private asset investments is performed less frequently than listed securities and may be performed less frequently than the valuation of the Company itself. In addition, in times of stress it may be difficult to find appropriate prices for these investments and they may be valued on the basis of proxies or estimates. These factors mean that there may be significant changes in the net asset value of the Company which may also affect the price of shares in the Company.
• Share price risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.