HEAD-TO-HEAD: First State vs Schroders

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Pictured: Don Yew, analyst for manager research at Morningstar

Asia allocation funds, or funds that allocate assets mostly in equities and fixed income (also known as traditional long-only mixed asset funds), have seen increasing demand from investors, according to Don Yew, Singapore-based analyst for manager research at Morningstar.

“We are seeing demand coming back for Asia allocation funds, and the demand is coming from both Asia and global investors,” he said.

In Hong Kong, assets of diversified funds increased by 17% to $137.45bn in March from $117.24bn in the previous year, according to data from the Securities and Futures Commission.

A key attraction is that a number of allocation funds are income-focused. The hunt for yield is still strong as interest rates globally remain low. Also, because this type of fund has exposure to two asset classes, it promises to have lower volatility than a traditional single asset class product.

Equities and fixed income outlook

Positive sentiment surrounds Asia equities.

Forward earnings per share of the MSCI Asia ex-Japan Index, for example, has been on an increasing trend and is expected to rise more in 2018, according to Joshua Crabb, head of Asian equities at Old Mutual Global Investors.

Valuations are also cheap, with the index price-to-book ratio at 1.7x versus the S&P 500’s 3.1x, he added

Fixed income sentiment by comparison is mixed, depending on the type of issuance.

For example, Asia high-yield corporate bonds are well-positioned versus European and US high-yield bonds in riding out anticipated interest rate increases, according to David Tan, Allianz Global Investors’ portfolio manager and chief investment officer for Asia-Pacific fixed income.

In the sovereign fixed income space, Asia is the least interesting geography when compared to Latin America and Eastern Europe for Bryan Carter, BNP Paribas Asset Management’s London-based head of emerging market fixed income.

Against this backdrop, FSA asked Don Yew, Singapore-based analyst for manager research at Morningstar, to provide a comparative analysis of the First State Bridge Fund, which is available in Singapore, and the Schroder Asian Asset Income Fund, which is available in Hong Kong.

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