It is a fund domiciled in Luxembourg and aims to deliver capital growth that outperforms the MSCI Emerging Markets Asia (Net TR) index, after deducting costs, for three to five years by investing in shares of companies in the Emerging Asian market.
The first thing to note, as we always do, is that this is an equity fund with equity-level risk, so it is a fund for an investor profile that understands how an equity portfolio works, which means it has a reasonable level of volatility.
Schroders is a specialist in Emerging Markets, with a long track record and a large number of funds dedicated to these markets. This particular fund is a classic of emerging markets, a pure Emerging Asia fund with very consistent results. Therefore, it is not surprising that Schroders is present in the portfolio of a large number of clients around the world.
The management team has an average of over 20 years of experience and a long track record managing the fund. This is undoubtedly the first precedent that speaks of quality in the management of the fund. In general, there is a correlation in asset management between successful funds and management teams that have been in charge of managing them for a long time.
Let’s start by reviewing their team. We already know that a necessary but not sufficient condition for success in investment funds is that senior team members should not rotate, but rather should have been managing the fund for a long time. Team rotation is usually a symptom that something is not going well, whether it is insufficient resources, poor leadership, or a lack of commitment to the strategy.
In the case of this fund, Louisa Lo is the Deputy Director of Equity of Asia ex-Japan, Director of Equity of Greater China at Schroders, an area that involves managing funds for Greater China and Emerging Asia strategies, and is responsible for the overall aspects of the Greater China Equity business. She joined Schroders in 1997 and is based in Hong Kong, so there is no shortage of experience and history in this team.
As of the end of February 2023, this strategy had over USD 5.7 billion in assets under management.
Performance of the Schroder International Selection Fund – Emerging Asia
Share class performance (%)
| Cumulative performance | 1 month | 3 months | YTD | 1 year | 3 years | 5 years | 10 years |
| Share class (Net) | -7,5 | 3,2 | 3,4 | -12,8 | 18,1 | 15,4 | 94,7 |
| Target | -6,9 | 0,3 | 1,2 | -15,3 | 4,8 | -4,1 | 36,0 |
Source: Factsheet Schroder International Selection Fund – Emerging Asia Fund, al 28-02-2023
As can be seen from the chart above, it is a fund that beats its benchmark (index) and is also consistent. The measures that should be weighted more heavily are 5 years of history and 3 years, in this case, it has a far superior performance to its benchmark.
Risk statistics & financial ratios
| Fund | Target | |
| Annual volatility (%) (3y) | 23,4 | 22,0 |
| Alpha (%) (3y) | 4,2 | – |
| Beta (3y) | 1,0 | – |
| Sharpe ratio (3y) | 0,3 | 0,1 |
| Information ratio (3y) | 0,6 | – |
| Dividend Yield (%) | 1,6 | – |
| Price to book | 2,4 | – |
| Price to earnings | 17,7 | – |
| Predicted Tracking error (%) | 4,9 | – |
Source: Factsheet Schroder International Selection Fund – Emerging Asia Fund, al 28-02-2023.
When reviewing the risk indicators in the table above, the first thing to note is that the 3-year Alpha is positive, which means that it adds value over the market beta (benchmark).
The second important thing is that the Information Ratio, which is alpha over the tracking error, basically how it uses the benchmark deviation, is positive, which means that the team is doing well in making bets and not being indexed to the benchmark.
Regarding the market beta, this is equal to 1 over three years, which indicates that it is a fund that has the same systemic risk as the benchmark index, so its bet is purely alpha, meaning that it strategically selects companies to invest in.
Other Fund Performance Indicators for Schroder International Selection Fund – Emerging Asia
Source: Factsheet Schroder International Selection Fund – Emerging Asia Fund, al 28-02-2023.
In the case of Schroders, country allocation is relevant, as it is not necessarily the output of the bottom-up process of investing in companies. It is known that Schroders uses a country selection model with a long track record and that, by prospectus, reserves the adoption of investing up to a third of the fund in countries and other assets. Therefore, the country allocation is also giving us information on the country-level opportunities that the investment house sees.
In this case, we see that it is overweight in China, Hong Kong, Singapore, Indonesia, Australia, and Sri Lanka. In terms of sectors, it likes Consumer Discretionary, Materials, Communication Services, Industrials, and Real Estate.
Positioning of Chilean Pension Funds in the Fund
Source: LVA Fundmate Analysis https://fundmate.app/ as of 28 February 2023
This is a section that has become mandatory section in each of the product analyses we do. The reason is simple: Pension Fund Administrators (AFPs) are institutional investors with sophisticated investment teams, access to information, and globally recognized investment processes. Therefore, if their analysis indicates investing in a Schroders fund, it is another argument that cannot be overlooked.
And here you can see that Chilean AFPs have invested 1.9 billion USD.
Conclusions
| Advantages | Disadvantages |
| -Positive Alpha and Information Ratio. -Consistent Alpha. -Experienced team. -Solid History and Track Record. -Institutional Background. -Large Size. | -It can make investments beyond companies, which requires alignment with the client’s country allocation. |
The Schroder International Selection Fund – Emerging Asia is a fund with a track record, an experienced team, consistent alpha, and a strong institutional character, and is undoubtedly the fund to invest in Emerging Asia.
