Getting out of China before its stock market collapse and going overweight India have helped the £1.5bn Jupiter Asian Income fund to outperform over the past few years.
Jason Pidcock, head of strategy, Asian income at Jupiter Asset Management, has helmed the fund since its inception, leading it to top-quartile performance over one, three and five years.
Below he tells Trustnet why he wishes he had even more tech, how other investors are too lazy to look at Australia and why he doesn’t invest in China.
Performance of fund vs sector since inception
Source: FE Analytics
What is your investment process?
We are top-down, so we think carefully about which countries we comfortable investing in and then which sectors; after that we try to pick the best companies.
We then think about the political system and demographics, which are very different throughout the region, as well as liquidity. That leaves us with five preferred countries: Australia, Taiwan, India, South Korea and Singapore, in order of the size of our allocation.
The idea of the fund is that it will generate superior total returns over time and income will be a significant part of that. We do say the fund will always yield 20% more than the benchmark so we want companies that have an ability, as well as a willingness, to pay dividends.
How should investors use your fund?
A lot of investors use it as a core Asian fund. It has enough diversification that you don’t necessarily need anything else. Some investors use it to reduce their overall weighting to China. Others own it because they like the income story.
The strategy has a low beta so it has typically outperformed when markets have fallen and it often has a shallower drawdown. Because of that, we always keep it fully invested. Even if we're feeling relatively cautious on markets in the short term, we ought to outperform if markets do fall, so we are never tempted to run up a large cash position.
Why don’t you invest in China?
We've been underweight China for many years. We entered July 2022 with only 6% of the fund in three Chinese stocks. That was the month when the heads of the UK and US security services made an unprecedented joint statement sending a message that they see China as our political foe. That was something we couldn't ignore.
Sure enough, three months later in October 2022, the US started implementing its restrictions on technology sales to China. They basically gave us a three-month warning. We took notice of that warning. We don't think anybody else did. And since then, China has underperformed significantly.
Where did you invest instead?
The flip side of taking money out of China meant that we had more money to invest elsewhere so we actively topped up India and Indonesia. As China kept falling, those markets were rising, so we feel that it has served clients well.
Going forward, there will be times undoubtedly when China has trading rallies, but in the past 30 years, whenever China has had a trading rally, it hasn't lasted that long and it's given most of it back afterwards. In the past 30 years in US dollar terms, returns from China have been dreadful. It's one of the worst performing markets in the world.
What’s your largest sector exposure?
We have a 30% exposure to technology, having added to it in January 2024, and with hindsight I wish I’d put more in tech. There will be an enormous replacement cycle for all types of technology as they get upgraded to artificial intelligence (AI) compatible versions. Asian companies will be at the forefront of that.
Why is Australia your largest market?
Australia accounts for 28% of the fund and has many large, liquid companies with good corporate governance paying attractive dividends.
Australia is ridiculously under the radar given how big an economy and a market it is. Australia is the only market that's come close to matching the returns of the US since the year 1900, yet global and Asian investors tend to shun it, I think, out of laziness.
People dismiss it as being a commodity-linked economy. Its biggest chunk of exports are commodities but it has a great variety of them and their prices do not all move in sync.
The biggest reason we invest in Australia is demographics. It has got one of the fastest growing populations in the world, faster even than India in percentage terms, because of high immigration.
What have been your best investments recently?
Semiconductor company MediaTek was one of our best performers last year and year to date, and it is one of our biggest holdings. Last year its total return was 71.7% versus 25.1% for the Taiwan Stock Exchange, in sterling terms. MediaTek sells more chips for smartphones than any other company by volume.
Taiwan Semiconductor Manufacturing Company (TSMC) has been phenomenal. TSMC is an essential supplier to Nvidia and their share prices are correlated. Apple is another huge customer.
TSMC is not expensive; it trades at a consensus forecast 2025 price to earnings (P/E) ratio of 16.5 times compared with Nvidia on 36.6 times, according to Bloomberg. TSMC’s valuation is lower than it otherwise would be, were it not for Taiwan’s political risk. Its shares are trading in New York on a 20% premium over the Taiwan-listed stock which we own. Year-to-date, TSMC shares are up 27.3% in sterling terms.
The fund’s largest holding, Hon Hai Precision in Taiwan, is up 30.7% year-to-date in sterling terms, versus 8.2% for the Taiwan Stock Exchange. Hon Hai (known as Foxconn internationally) is the largest electronic contract manufacturer in the world and the largest manufacturer of servers, and its sales are increasing significantly because of AI.
Which stocks have detracted from performance?
HDFC Bank in India has been a great long-term performer but it recently de-rated. Investors have gravitated towards cheaper, lower-quality banks. Last year, HDFC’s total return was flat whereas the Sensex index rose 13.3%, according to Bloomberg.
Dexus, a real estate and infrastructure manager in Australia, and Link REIT in Hong Kong have been detractors. With hindsight we should have sold out in 2019, if I’d known Covid was coming. Dexus returned 0.6% last year versus 8.3% for the AS51 index in sterling terms. Meanwhile, Link REIT lost 20.9% while the Hang Sang index fell 15.2%.
Thai beverage is our smallest holding. Tourism hasn’t recovered as fast as we’d hoped so beverage sales haven’t picked up.
What do you do outside of fund management?
I spend my weekends walking my three dogs and managing the woodland that I own. There are always things to do; branches fall down, fences need repairing and dog proofing.