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10 Oct 2023

The Foord Asia Ex-Japan Fund Explained

Given Foord’s location in Singapore, Asia is a natural hunting ground for long-term investment opportunities by an investment team that counts in its number five Asian investment professionals, including four Mandarin speakers. Their comprehensive knowledge of this vast market and its companies served as motivation for the fund’s genesis.

It is noteworthy that the fund’s Asian investment universe excludes Japanese securities. Before China’s ascendance, Japan was the second-largest economy in the world. Historically, there was a proliferation of Japanese-specific funds and the idea of ‘Asia excluding Japan’ was born. Given Japan’s slow growth rates, its exclusion from a universe of fast-growing countries still makes sense.

In managing the fund, portfolio managers Ishreth Hassen and JC Xue apply the same philosophy of finding value and managing risk that Foord applies to all its investment strategies. Our focus is investing into quality businesses run by capable management teams with demonstrable track records of capital allocation.

In the two years since the fund’s inception, Asian share markets have faced headwinds on worries over China’s economic policies, geopolitical positioning and slowing growth. The fund’s benchmark — the MSCI All Country Asia ex-Japan Index — has fallen by nearly 23% in this time. The Foord Asia ex-Japan Fund has nevertheless outperformed the benchmark by over 7%.

A pivotal aspect underpinning our success in limiting the drawdowns is the meticulous, granular approach to stock selection. The team’s profound understanding of the leading businesses, enriched by in-depth prior research and experience in building the Foord Global Equity Fund portfolio, offered a distinct advantage from the get-go.

Examples include, China’s largest online travel agency, and Coupang, Korea’s leading e-commerce platform. We knew the industries and companies well from past analysis of companies such as, Tripadvisor and Amazon. We favoured for its quality management team, cash generative business model and the premise that it would benefit from China’s post-pandemic travel rebound — and so it proved to be. Amazon copycat Coupang caught our attention after its share price fell more than 70% from its listing price, which provided a very attractive entry point. Leveraging existing knowledge built from studying global businesses helped with these investments.

Two thirds of the fund is invested in China, compared to its one-third weight in the benchmark. The investment thesis is predicated on rock-bottom valuations compared to Asian peers rather than overarching macroeconomic considerations. Many of the Chinese names in the fund are currently priced for low growth into perpetuity — in contrast, we forecast their recovery and continued structural growth. This is a market dislocation that we are exploiting in the fund.

Despite the prevailing macroeconomic headwinds in China and the bear-market sentiment, we remain constructive on the investments we own at these very attractive valuations. We know that bear markets will end and the returns for patient, long-term investors will be material. We don’t expect to always run an overweight position to China in this fund — our geographic allocations will invariably be steered by evolving valuation dynamics.

In terms of other themes in the portfolio, digitalization is one that commands our attention. Be it e-commerce, online travel platforms, cloud innovations, or artificial intelligence, the trajectory towards digitalization is secular. Companies aligned to this progression are poised to benefit from accelerated growth dynamics, reinforcing our investment convictions in this sector. Some examples include, Alibaba and Coupang for e-commerce platforms, with TSMC and Baidu benefiting from cloud innovations and artificial intelligence.

The Foord Asia ex-Japan Fund is approved for distribution in South Africa. Investors interested in the product should understand that it comprises a mix of companies and industries that are quite diverse from those available locally, but whose emerging-market macro fortunes are correlated to South Africa’s. So, while we expect that returns from these valuations could be outsized, South African investors should accordingly proceed with caution.



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