The strategy uses a combination of top down and bottom up analysis with the objective of generating excess return through the economic cycle, with most of the risk and returns relative to its MSCI AC Asia (ex Japan) benchmark achieved through stock selection.
“Equity markets in the Asia region represent significant opportunities for stock picking and alpha generation. Many of the largest emerging market economies in Asia have undergone significant structural improvements over the last two decades and these, coupled with high levels of GDP growth, have provided fertile ground for companies to prosper,” said Andrew Swan, head of Asia (ex-Japan) equities at Man GLG, in a statement.
“Despite this, they remain relatively under-researched and less efficient than developed markets, so we believe they offer ample opportunities for investors over the economic cycle,” he added.
The MSCI AC Asia (ex Japan) index is up 14.98% so far this year, outperforming the MSCI AC world index by almost six percentage points, FE Fundinfo data shows.
Swan left Blackrock abruptly in April after nine years managing the firm’s flagship Asian equity funds, stating that he wanted to return to his native Australia.
He had spent 17 years at JP Morgan moving to Blackrock, where he was head of Asian equities for the fundamental equity division of the firm’s Alpha Strategies Group, and was responsible for managing several regional equity portfolios, including the Asian Dragon and Asian Growth Leaders funds. He was also a leader of the US firm’s global emerging markets team.
Morningstar subsequently downgraded the cheapest share classes of the $1.9bn Asian Dragon Fund to a Neutral (forward-looking) analyst rating from Bronze, and the more expensive share classes from Neutral to Negative, on the basis that the departure of Swan “eroded [their] conviction” in its future performance.
Since the start of his tenure at the Asian Dragon fund on 30 September 2011 until 1 April 2020, Swan had generated 115.36% cumulative return, well in excess of its benchmark (93.85%) and the sector average (67.2%), according to FE Fundinfo.
Stock selection was the main contributor to returns, and now Sydney-based Swan intends to replicate that performance with a long-only and style agnostic strategy for Man GLG’s discretionary clients.
Swan is supported by former Blackrock colleagues Alethea Leung and Anand Agarwal, as well as Sally Chan (poached from CLSA) in Hong Kong, and also Andrew Hill in Sydney who recently joined from Australian superannuation fund UniSuper.
Underpinning the investment philosophy is the idea that the main drivers of alpha in Asia (ex-Japan) equity markets are “high cross-sectional single stock dispersion and relative earnings revisions”, according to the statement.
The aim is to capture turning points in companies that have high EPS revision potential due to surprises in revenue, costs, margins, cash flows over a forecast period of up to 12-18 months.
“These sources of surprise can be derived by many factors including management strategy and operational decision making, competitive dynamics, macro and micro economic factors,” said the statement.
Swan could not be reached prior to publication to provide details about portfolio composition, but top holdings in the Blackrock GF Asian Dragon Fund when he managed it comprised mostly large-cap tech names, such as Samsung Electronics, Alibaba, Tencent and Taiwan Semiconductor.
However, his strategy at Man GLG will have a tilt towards mid-cap companies with an active share of at least 70%, and sector or country weights will typically be +/-20% versus the MSCI Asia (ex-Japan index, according to the statement.
“As a region, Asia is attractive because it’s a market where fundamentals dictate returns, and one with high dispersion at the stock level, making it a rich environment for proven managers like [Swan],” said Teun Johnston, CEO of Man GLG the statement.
Man GLG, the discretionary investment management arm of London-head quartered Man Group, had $27.3 billion in AUM as of 30 September 2020. Man Group runs a total of $113.1bn in AUM, according to the statement.