ALTU story - Validating the theory

28 May 2019

Making the leap from theoretical proof of concept, to actual investment outcomes

ALTU: proving the concept

The theory may be attractive but validation is ultimately derived from actual investment outcomes. ALTU’s central premise – long-term ownership of high-return businesses bought at reasonable prices should lead to returns more reflective of the region’s economic potential – has been borne out. As Chart 2 shows, since inception, the strategy has delivered returns commensurate with Asia ex Japan nominal GDP growth, as well as a higher annualised return than the broader market (MSCI AC Asia ex Japan).

Chart 2. ALTU has delivered returns in line with GDP and ahead of the market

Past performance is not a guide to future returns. GDP data is subject to revision and historic numbers may change. The return may increase or decrease as a result of currency fluctuations.
Source: Martin Currie and IMF World Economic Outlook to 30 April 2019. Net data presented is the Martin Currie Asia Long-Term Unconstrained US$ composite. This data is presented net of investment advisory fees, broker commissions, and all other expenses borne by investors. The annual fee rate used is 0.75%. Composite start date 31 July 2008. This strategy is not constrained by a benchmark but we show it versus the MSCI AC Asia ex Japan for illustrative purposes only. The figures provided includes the re-investment of dividends. US$ GDP is based on the data published by the IMF in October 2018. The performance record noted above is clear representation of the strategy’s performance over the period shown. Performance information showing five years (or since inception) in complete 12 month periods is available upon request. Performance displayed is supplementary to the GIPS compliant information at the end of this document.

Navigating volatility

Another of ALTU’s fundamental features is its ability to find a pathway through choppy waters and reduce exposure to volatility for investors.

While volatility has decreased in Asia in recent years, the last decade has still seen pockets of high volatility on several occasions, most notably the immediate aftermath of the Global Financial Crisis in 2008/09, the taper tantrum of 2013 and the Chinese A-Share bubble in 2015/16. In these periods, where strategies with a shorter-term focus have stuttered, ALTU has delivered a smoother investment journey. Since inception, ALTU has captured 80% of the market upside but only 62% of the downside (see Chart 3).

Upside participation in positive market months (average returns)

Upside participation in positive market months (average returns)

Downside participation in negative market months (average returns)

Downside participation in negative market months (average returns)

Past performance is not a guide to future returns. The return may increase or decrease as a result of currency fluctuations.
Source: Martin Currie to 30 April 2019. Net data presented is the Martin Currie Asia Long-Term Unconstrained US$ composite. This data is presented net of investment advisory fees, broker commissions, and all other expenses borne by investors. The annual fee rate used is 0.75%. Composite start date 31 July 2008. The figures provided includes the re-investment of dividends. This strategy is not constrained by a benchmark but we show it versus the MSCI AC Asia ex Japan for illustrative purposes only. The performance record noted above is clear representation of the strategy’s performance over the period shown. Performance information showing five years (or since inception) in complete 12 month periods is available upon request. Performance displayed is supplementary to the GIPS compliant information at the end of this document.

A stock-level focus

With ALTU’s strong stock-specific focus, it makes sense to look at growth in the region through the lens of some stock examples:

AIA – an insurance giant with 100 years of history

A long-term portfolio investment, AIA is one of the leading life insurance companies in Asia, with a presence in 18 countries across the region, serving 49 million customers individually and through group schemes. From its origins in Shanghai in 1919, the company has grown to become one of the most trusted and recognised financial services brands in the region.

The company is an excellent example of the type of business in which we wish to be invested on behalf of our clients. It has attractive organic growth potential, as well as a good track record of profitable delivered growth; it generates substantial excess capital which has been employed to great effect in new business growth and sensible acquisitions; and on top of this has steadily increased its dividend.

LG Household & Health Care – a leader in cosmetics and household goods

The Korean consumer-goods business LG Household & Health Care (LG H&H), spun out of LG Chemical in 2001, operates in cosmetics, household goods and beverages and has gained market share in all business segments it operates.

LG H&H has very successfully been harnessing the growing spending power across Asia, particularly in its high-margin cosmetics segment. It has seen sustainable growth in its duty-free sales and is also rapidly expanding its direct sales in mainland China, where the majority of its sales come from its luxury cosmetics brand ‘The History of Whoo’. Indeed, premium cosmetics sales in China are expected to continue to grow at a rapid clip.

TravelSky – serving China's booming air travel industry

A more recent investment, TravelSky is the dominant provider of information technology solutions for China’s aviation and travel industry. TravelSky’s aviation technology services are provided to domestic and foreign airlines and consist of a range of products including inventory management systems, computer reservation systems, airport passenger processing technology and solutions for e-ticketing and e-commerce. China has an ambitious strategy for expanding its network of airports, while rising affluence is leading to increased demand for air travel. In 2018, TravelSky’s Electronic Travel Distribution system processed approximately 644 million flight bookings, or 9.8% more than the previous year, and 958 million were processed through the firm’s accounting, settlement and clearing system. We anticipate many years of growth in Chinese domestic air-passenger volumes, with TravelSky being a key beneficiary.

The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
Source: Company Annual Reports.