SCHRODERS
term investment time horizon and
the stomach for a bumpier ride,
the broad range of opportunities
in this area offers significant
growth potential. Indeed, Dobbs
believes that any investor who
accepts the case for investing in
emerging market/Asian equities
more generally should consider
including some exposure to
smaller companies.
THE BROAD RANGE
OF OPPORTUNITIES
IN THIS AREA OFFERS
SIGNIFICANT GROWTH
POTENTIAL
ADDING VALUE THROUGH
ACTIVE MANAGEMENT
markets in the Asian region.
In line with the fund’s small cap
orientation, the team’s research
effort concentrates on the
smallest 20 per cent of companies
in each market. This typically
comprises 70 to 80 per cent of
listed companies by number.
Many of these have inadequate
liquidity to be viable investments,
but there are still 1,500 with a
market capitalisation in excess
of $300m. The companies are
spread across a diverse range of
sectors with a good representation
in innovation-rich areas such as
information technology, media
and health care.
Given the wide variability in
performance in smaller company
stocks in less developed markets,
Dobbs believes there is great scope
to add value through skilled active
investment. Small cap stocks tend
to have limited research coverage
within the market, so there is an
opportunity to gain an information
advantage through thorough on-theground leg work. His long tenure
with Schroders means he is well
placed to assess recommendations
made by the firm’s in-house analysts
– not only the Asian equity analysts
based in offices across the region,
but also analysts covering other
emerging markets based in London,
EMEA and Latin America.
VALUATION-FOCUSED
Dobbs’ investment process is
focused on buying good companies
at reasonable prices. This means the
fund is largely location-agnostic.
Most of the companies the fund
invests in are in emerging markets,
but on occasion the team may
identify opportunities in less
developed “frontier” markets.
He may also invest in smaller
companies in developed markets
which derive a high proportion
of their revenue or growth
from activities in high-growth
economies. Companies listed in
Hong Kong and Singapore are
included, given they are the two
leading financial centres and capital
THE MARKET OUTLOOK AND
PORTFOLIO STRATEGY
Asia is undergoing a period of
transition. There has been a
protracted period of above-trend
credit growth since the global
financial crisis, with China the
primary beneficiary, which will
in Dobbs’ view be more modest
in future. Asia’s growth trend is
likely to moderate as a result as
corporates and households seek to
pay down debt. While monetary
and fiscal spending may counter
this to some extent, the outlook
for companies and sectors that
have relied on credit growth will
be muted. As a result, Dobbs sees
all the more reason to seek out
pockets of growth, something
which can be done through
investment in well-placed smaller
companies.
From a bottom-up stockpicking
perspective, Dobbs continues
to find opportunities. The fund
currently has a significant
weighting to domestically oriented
consumer discretionary stocks.
These would stand to benefit from
a shift in the growth models of
Asian and other emerging market
economies from a primary focus
on exports and capital-intensive
investment towards increasing
domestic consumption. The fund
has an underweight exposure to
China relative to its benchmark,
as Dobbs struggles to find quality
companies and believes valuations
have risen to levels that bear
little relation to the underlying
fundamentals.
What are the risks?
THE VALUE OF INVESTMENTS AND THE INCOME from them may go down as well as up
and investors may not get back the amount originally invested.
Past performance is not a guide to future performance and may not be repeated.
The fund invests in assets which are exposed to currencies other than sterling. Exchange
rates may cause the value of overseas investments and the revenue from them to rise or fall.
The fund invests in less developed markets which are generally less well regulated than the
UK. They may be less liquid and may have less reliable custody arrangements.
The fund invests in emerging markets and the Far East. This involves a high degree of risk
and should be seen as long term in nature.
The fund invests in smaller companies which may be less liquid than larger companies and
price swings may therefore be greater than in larger company funds.
The fund may use derivatives for specific investment purposes. This involves a higher degree
of risk and may lead to a higher volatility in the unit price of the fund.
Important Information: The most up to date Key Investor Information Document (KIID) and Prospectus can be viewed on the UK investor website via www.schroders.co.uk/investor. For further explanation
of any financial terms, visit www.schroders.co.uk/glossary. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Issued in
June 2015 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered in England No. 4191730. Authorised and regulated by the Financial Conduct Authority. UK09498
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