Challenge
Seeking to generate income from Asian equities while mitigating risks related to China holdings.
Solution
A key feature of the Jupiter Asian Equity Income strategy, which sets it apart from peers, is that it has zero holdings in mainland China equities. The fund managers believe that the best investment opportunities in the region are outside of China. They also believe the Chinese political system isn’t compatible with generating strong shareholder returns for foreign equity investors, and that Chinese listed companies do not have the primary goal of maximising shareholder returns. Chinese equity returns have lagged those of Australia, India and Taiwan over the last 30 years (see chart), most recently because of the collapse of the country’s property market. The fund managers see additional risks regarding China:
- Geopolitics: Geopolitical tensions between China and the US, Europe, Japan, India, Southeast Asia and Australia remain elevated and are likely to deteriorate further, in their view.
- Demographics: China’s population is shrinking by >250,000/month, the number of births in China last year was half the number in 2016, and the UN forecasts its population will halve by 2100.1
The fund focuses on four markets: Australia, Taiwan, India, Singapore. The fund managers prefer these countries from a top down perspective, considering factors such economics, domestic politics, geopolitics, currencies and demographics.
Although the fund has no holdings in mainland China, ~14% of the revenue generated by the fund’s holdings comes from China via companies selling products and services into the country.
The fund managers seek to provide diversification and to build a portfolio that can perform in as many different economic, geopolitical and market environments as possible.
China returns lag those of Australia, India, Taiwan
Benefits
- Generating income from Asian equities while minimising China risks
- Zero holdings in China, sets fund apart from peers
- Focus on Australia, Taiwan, India, Singapore
- Well-diversified portfolio
Fund specific risks
- Currency (FX) Risk - The strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
- Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
- Emerging Markets Risk - Emerging markets are potentially associated with higher levels of political risk and lower levels of legal protection relative to developed markets. These attributes may negatively impact asset prices.
- Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
- Market Concentration Risk (Number of holdings) - The strategy holds a relatively small number of stocks and may therefore be more exposed to under-performance of a particular company or group of companies compared to a portfolio that invests in a greater number of stocks.
- Derivative risk - the strategy may use derivatives to reduce costs and/or the overall risk of the strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the strategy.
- Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the strategy.
- Counterparty Risk - the risk of losses due to the default of a counterparty e.g. on a derivatives contract or a custodian that is safeguarding the strategy’s assets.
- Charges from capital - All of the strategy’s charges are taken from capital. Should there not be sufficient capital growth in the Fund this may cause capital erosion.
- Stock Connect Risk - Stock Connect is governed by regulations which are subject to change. Trading limitations and restrictions on foreign ownership may constrain the strategy's ability to pursue its investment strategy.
A concentrated, high conviction portfolio
Important Information
This is a marketing communication. This document is intended for investment professionals and is not for the use or benefit of other persons. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.