Best Fund Provider Asia Pacific Equity
Nikko Asset Management
Best Fund Provider – Asia Pacific Equity
Grace Yan
senior portfolio manager
“Our small-cap strategy is a bottom-up best ideas strategy. We believe that applying fundamental research to identifying undervalued companies capable of achieving high sustainable returns and/or benefiting from positive structural change will lead to a superior investment performance. ESG is woven into the investment process which is especially important for small caps as many companies do not have ESG ratings on public sources.
Of our holdings, 33% have market cap of less than US$1 billion – testament that we are really looking for small caps, acorns with the ability to grow into great oak trees. Very often, we see smaller stocks get re-rated when they cross the US$1 billion market cap mark as larger-cap mandates are now able to buy these counters. The critical factor here is early participation in the growth of these high-quality smaller companies.”
Winnersrationale
The China and Hong Kong stock markets experienced a volatile year in 2021 as a result of regulatory clampdowns. Despite this, there was no shortage of investors seeking investment opportunities in the Asia Pacific, due to a strong home bias and/or faith in the broader narrative of tremendous growth opportunities created by the rising middle class in many emerging economies in the region.
The Nikko AM Shenton Emerging Enterprise Discovery Fund takes a more nuanced approach by investing into a concentrated basket of 50-90 small/mid-cap companies in Asia (ex-Japan). It takes advantage of the gap between stock price and growth potential in these companies. Because of the lack of in-depth research available in the Asia small/mid-cap universe (which consists of over 4,000 stocks), international investors often overlook such investment opportunities.
Demonstrating the strength of its bottom-up research capabilities, one of the top holdings in the portfolio was Sunjuice Holdings — a Taiwanese mid-stream producer of concentrated fruit juices, fruit pulps and fruit-flavoured powder with operations in China.
With its stock price reaching a historical peak in mid-2021, Sunjuice delivered a strong return for the fund. Being a small-cap company in the food manufacturing sector, the company was shielded from the impact of an anti-monopoly regulatory clampdown in China. It ranks high in terms of ESG and corporate social responsibility (CSR) as it engages in sustainable farming, leasing land in China and engaging locals to work in its pesticide-free fruit farms.
The Nikko AM Shenton Emerging Enterprise Discovery Fund generated strong alpha, both against the benchmark and other contestants. By the end of June 2021, the fund recorded an outperformance of close to 30% against the MSCI AC Asia ex-Japan small-cap index, unlocking the immense upside potential of well-informed and precise stock-picking which is crucial for small-cap investments in Asia markets.
Nikko Asset Management is Asian Private Banker’s Best Fund Provider – Asia Pacific Equity for 2022.
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