Best ideas create best pay-out
Nomura Asset Management was recognised as a best performer in Asia Asset Management’s Best of the Best Awards 2022 in the category of Asia Pacific Equity ex-Japan (5 Years).
The accolade can be attributed to Nomura’s well-established Asian capabilities, its Asia High Conviction (AHC) equity strategy and a commitment to increasing Asian influence on global economic and market developments. Vipin Kapoor, senior portfolio manager, is the lead manager of AHC. Following a country centric approach the strategy is predominantly focused on stock selection, with mandates tailored to meet clients’ requirements. As at end December 2021, Nomura Asset Management manages around US$13.8 billion in Asia ex-Japan equity strategies, including AHC.
“The fund philosophy is primarily bottom up focused and a significant majority of our performance is derived from bottom up selection. Top-down analysis captures information from our macro-economic understanding of the markets and from the aggregation of our bottom-up research,” explains Kapoor.
The approach has paid dividends, as reflected in the long-term track record of the fund. With excess return of 5.72% per annum and seven out of eight years of calendar outperformance since inception it has achieved a five star rating with Morningstar, placing it in the top quartile of peers across two, three and five year periods.
One unique feature, says Kapoor, is how the strategy is structured around country teams that choose stocks and model portfolios within their own country of coverage.
“In-depth country level primary research forms the basis of our stock picking. We try to avoid basing portfolio decisions on macro calls and prefer to focus on individual stocks. Based on our experience, different factors work well in different markets, and our high conviction approach emphasises owning more of what we believe are the best ideas in Asia,” he adds.
At the same time, he says, there is no compulsion to own names that don’t meet the fund’s investment objectives. Every stock included in the portfolio is overweight relative to the benchmark and no neutral or underweight positions are allowed.
“We also believe that taking account of ESG considerations within our stock analysis and engaging with companies can help enhance long term performance.”
Market outlook
For Kapoor, current global conditions are creating a fertile environment for active managers.
“Asia is in a far better position than before with respect to policy tapering, monetary tightening and the economic external situation. There is no doubt that the current environment – with the added burdens of high oil prices, geopolitical tension and Chinese regulatory uncertainty – will generate headwinds, but it offers up a good opportunity to buy sound stocks at the right time. At the same time, a number of factors operate in favour of the Asian equity markets – economic recovery and faster growth rates, longer-term underperformance, positioning, and fund flows.
The region is entering a classic stock picking environment – volatile markets, several moving parts, global headwinds, and last but not least, Chinese unpredictability. This is a scenario that excites us the most and therefore fuels our optimism for Asia investment prospects from a bottom up perspective,” he says.
Explaining the various markets he notes that the AHC fund remains underweight on China / Hong Kong markets. Korea remains Nomura’s AHC largest underweight exposure, while Taiwan and India have been the two outperformers in the last two quarters.
Taiwan has seen some earnings downgrades despite some upstream pricing power and margin resilience. However, Nomura maintains some exposure through leading global technology franchises but overall retains a small underweight. On India, he sees economic recovery well underway in a country that continues to be the largest overweight position for AHC.
“The smaller ASEAN markets seem to offer more promise than ever before,” according to Kapoor, with easing restrictions and a better earnings outlook from tax cuts driving improved sentiment in the Philippines. The fund is also seeking opportunities in Thailand, where macroeconomic conditions are showing distinct signs of improvement and further promise from “a decisive reopening of the tourist-dominated economy, and maintains an overweight position in Indonesia”.
Unsurprisingly, Singapore remains the strongest ASEAN economy, with what Kapoor describes as “an assertive and detailed budget”. Strong currency and recovery in economic activity are good reasons to maintain a large Singapore weighting.
Nomura Asset Management was also awarded best performing Global Aggregate Bonds (5 Years) and best performing US High Yield (10 Years).