Q. What is the basic approach to managing the fund?
The investment approach is predominately judgementally-driven, focusing on using the best investment ideas from our research process. The portfolio manager looks to add value by taking unconstrained active positions where our bottom-up stock selection process identifies investment opportunities. The investment objective is to invest in companies with growth prospects in the Asia region that may not have otherwise been recognized by the market and that have limited downside potential. The portfolio manager runs a concentrated portfolio of 40 to 50 names to reflect our key conviction ideas, which should enhance the portfolio performance over the long term.
Q. Are there any particular market conditions that suit your fund?
Given our focus on bottom-up stock selection and our concentrated portfolio, we believe a mild equity bull market supported by improvement in corporate fundamentals should be the ideal market condition for our strategy. Conversely, a low quality rally or a highly sentiment driven market environment tend to make it more difficult for our conviction names to outperform strongly.
Q. What strategies have been the most successful and unsuccessful over the past twelve months?
Looking at the Asia ex Japan space, we believe the least successful strategies in 2013 are those betting on a continuous ASEAN equity rally despite the expensive valuations. Given the heavy overweight in ASEAN countries and low liquidity of particular ASEAN stocks, these strategies underperformed significantly after the announcement of Fed QE tapering in May 2013. Allianz Total Return Asia strategy has been focusing on North Asia, particularly the Greater China region, given our belief of a stable economic growth in China and a well-managed deleveraging process. Our strategy has been among the top performing funds within Asia ex Japan space during the past six and twelve months.
Q. Which Asian regions do you think are looking the most valuable at the moment?
We prefer North Asian markets within the region. North Asia ex Japan equities should be supported by their attractive valuations when compared to the expensive ASEAN counterparts. South Korea and Taiwan exporters, especially those with niche market positioning or technology leadership, are well positioned to benefit from improving outlook for global growth in 2014.That said; we expect some volatilities in the near term due to the impact of a weakening Yen. In China, we anticipate a steady GDP growth and a moderate inflation range, given the Government’s unchanged objective to “secure stable growth, adjust economic structure and promote reforms”. However, we believe the equity market should be driven by a recovery in corporate earnings and re-rating momentum from the current low valuation, which should be largely driven by the implementation of the reform measures. Comparatively, we are less positive on the ASEAN markets, amid weakness in fundamentals and relatively high vulnerability to QE tapering.
Q. What are the main challenges which will be faced by the fund in the next one to two years?
Given the strategy’s focus on the Asia ex Japan equity space, we believe the major challenge is potentially panic fund outflow out of the region, caused by either a systematic crisis in Asian economies or drastic monetary tightening by global central banks that drains market liquidity. However, neither case is our central scenario. We believe Asia should continue to be the growth engine for world economy, and that the structural problems in Asian economies should be solved gradually as Asian policy makers actively promote reform measures. On the other hand, we expect major central banks around the world will begin the tapering process in a gradual manner without causing panic in the market place, while using strong forward guidance to stabilize investor sentiment.
This document does not constitute an offer to sell or any solicitation of any offer to buy securities or any other instrument described in this document. Allianz Global Investors has expressed its own views and these may change. The data contained in this document has been sourced by Allianz Global Investors and should be independently verified before further publication or use. Neither this nor any other statement (oral or otherwise) made at any time in connection herewith constitutes an offer to sell or exchange units in the fund or any other fund or product and is not soliciting an offer to buy or exchange and does not constitute an invitation to subscribe for, buy or exchange any units in the Fund or any other fund or product in any jurisdiction where the offer, sale or exchange is not permitted. Potential investors are advised to obtain and review independent professional advice and draw their own conclusions regarding the economic benefits and risks of investment in the fund as well as the legal, regulatory, tax and accounting aspects in relation to their particular circumstances.