Asia Investment Trusts -China Exposure

[jaizan]

For decades, the investment market and index companies have had an "Asia excluding Japan" category.

I don't see an "Asia excluding China" category & if it exists, there is certainly not a widespread choice of products.

In practice, almost all the general Asian Investment Trusts have 30~50% of their portfolios in Greater China, ie China, Taiwan & Hong Kong.

This seems a tad risky to me, as if there were a war over Taiwan, I could foresee a near 100% loss on those assets. Just like we have seen with Russian investments.
Even Trusts such as Aberdeen Asia Focus, who once resisted investing in China have caved in and are allocating an increasing proportion of funds to the country. Not to mention assets already in Taiwan.

There seems to be a failure of the industry to offer a reasonable choice here. Personally, I see more need for "Asia Excluding China" than "Asia Excluding Japan".
For example, where is a SE Asia Investment Trust ? Or a Asia excluding Greater China trust ?


Of course, there are about 3 Vietnam products.
Aberdeen had a Thai Trust, but they closed it and gave investors the choice of cash or moving it into China. [I took cash, to match my investment objectives and it's the only way to punish a fund manager by reducing their AUM].

So even assembling a few trusts is difficult.

Even if I want China allocation, I'd rather have it as a separate trust so there is some control.
After all, I managed to sell my Russian Investment Trust for a small gain, but the diversified EM ITs that I hold did not manage to exit Russia in a timely fashion.

Discuss.

[mc2fool]

Well, only a little tangentially, there do seem to be a number of Emerging Markets ex China ETFs around. Even a Franklin FTSE Asia ex China ex Japan ETF. https://www.google.com/search?q=ex+china+etf

However I do remember there being a couple of ITs with no/very low Chinese exposure ... just can't remember which ones right now.

[dundas666]

Yes I imagine there's be a lot of people that would be interested in an Asian IT excluding Japan, China, Taiwan and Hong Kong.

[jaizan]

Well, only a little tangentially, there do seem to be a number of Emerging Markets ex China ETFs around. Even a Franklin FTSE Asia ex China ex Japan ETF. https://www.google.com/search?q=ex+china+etf

Thank you. Unfortunately, that example has 25.75% in Taiwan. Any attempts at reunification by China would still have a huge impact on that.

[RockRabbit]

The problem is if you exclude China, Taiwan and Hong Kong, there's not much of Asia left by market capitalisation!. Furthermore if China did attack Taiwan it would be a much 'bigger deal' than the Russian invasion of Ukraine. Therefore I suspect every stock market in the world would slump, including the non-Chinese Asian markets which would probably crash. I guess by avoiding China/HK, you would at least avoid being 'Gazpromed', which is an increasing risk going forward even without a Chinese invasion.

You can probably avoid China/HK/Taiwan by buying a frontiers markets IT but of course that opens up another can of worms. eg Blackrock Frontiers.

https://www.blackrock.com/uk/literature ... tsheet.pdf

[jaizan]

The problem is if you exclude China, Taiwan and Hong Kong, there's not much of Asia left by market capitalisation!

The MSCI ASEAN Index has a market cap of about $600bn. The total market cap is well over $2 trn.

I think this could support a £500m Investment Trust, although launching a new one is always difficult, as they are expected to trade at a discount.

Aberdeen should have dome something more useful with their Thai trust, such as merging it with another one and creating an ASEAN trust.

Furthermore if China did attack Taiwan it would be a much 'bigger deal' than the Russian invasion of Ukraine. Therefore I suspect every stock market in the world would slump, including the non-Chinese Asian markets which would probably crash

I agree, but within a few years, any country not directly involved would recover.
Whereas, for countries subject to sanctions and tit for tat reprisal sanctions, investments would go to zero & be at risk of staying there. That's what I want to avoid.

Of course, all the funds choose to measure risk by volatility & as long as everyone else does the same, they probably don't even think about true geopolitical risk leading to near 100% loss of capital. Just keep taking the fees.

[SalvorHardin]

What about doing a DIY portfolio of single country Investment Trusts and ETFs?

There are quite a few Indian and Japanese Investment Trusts and you can use ETFs for Indonesia, Singapore, Thailand and The Philippines (a quick look didn't find single country Investment Trusts for these).

Okay, it's a bit cumbersome, but it does allow you to avoid having investments in China, Hong Kong and Taiwan (all of my Asia exposure is Indian ITs, mostly Ashoka India Equity).

[jaizan]

What about doing a DIY portfolio of single country Investment Trusts and ETFs?

I suspect that's probably the best option.
Investment Trusts: Japan, Vietnam & possibly India
ETFs for the rest


I'm a little sceptical of ETFs, as on average, where I have invested in Investment Trusts, they have outperformed the nearest benchmark ETF I could find.
Whilst many studies claim the low cost ETFs ought to come out ahead, I suspect that's mostly based on the allegedly efficient US market. Not the far east.

Even among the ETFs, there are several "ex-Japan" products, but nothing labelled as an "ex-China" product. So it may well have to be single country ETFs.

[jaizan]

Here's some data to support my previous comments on Investment Trusts:

The ones I hold have, on average, outperformed an equivalent ETF by 3% per year, compounded.
Measured from the original purchase date.
On average, it is 12 years since I first purchased the investment trust on this list.

I attempted to pick an equivalent ETF in each case.
For example, the equivalent to Aberdeen Asia Focus was the iShares MSCI AC Far East ex-Japan Small Cap UCITS ETF

Now, much of the financial literature out there says that due to charges, the average fund manager underperforms indices & that it's not possible to pick outperforming managers based on past performance.

However:
1 These studies typically consider the US market, which is allegedly more efficient than most.
2 They always try to pick future winners based on past performance over 3 years. I tried to pick future winners based on past performance over 10 years.

Perhaps I was lucky. Particularly when quite a few of the original fund managers have moved on.

Hence my reluctance to choose ETFs. However, I will have to overcome that.

[richfool]

For decades, the investment market and index companies have had an "Asia excluding Japan" category.

I don't see an "Asia excluding China" category & if it exists, there is certainly not a widespread choice of products.

In practice, almost all the general Asian Investment Trusts have 30~50% of their portfolios in Greater China, ie China, Taiwan & Hong Kong.

This seems a tad risky to me, as if there were a war over Taiwan, I could foresee a near 100% loss on those assets. Just like we have seen with Russian investments.
Even Trusts such as Aberdeen Asia Focus, who once resisted investing in China have caved in and are allocating an increasing proportion of funds to the country. Not to mention assets already in Taiwan.

There seems to be a failure of the industry to offer a reasonable choice here. Personally, I see more need for "Asia Excluding China" than "Asia Excluding Japan".
For example, where is a SE Asia Investment Trust ? Or a Asia excluding Greater China trust ?


Of course, there are about 3 Vietnam products.
Aberdeen had a Thai Trust, but they closed it and gave investors the choice of cash or moving it into China. [I took cash, to match my investment objectives and it's the only way to punish a fund manager by reducing their AUM].

So even assembling a few trusts is difficult.

Even if I want China allocation, I'd rather have it as a separate trust so there is some control.
After all, I managed to sell my Russian Investment Trust for a small gain, but the diversified EM ITs that I hold did not manage to exit Russia in a timely fashion.

Discuss.

Jaizan, If it's of any help, I opted to get my Asia (Pacific) exposure through AAIF. It has less exposure to China than most of its peers at 8%, though it does have 23% exposure to Taiwan. (India is included at 7.6%).

Note, I do hold some global G&I trusts which will also have some exposure to Asia.

https://www.hl.co.uk/shares/shares-sear ... npv-shares

https://www.fundslibrary.co.uk/FundsLib ... 2f3QFl&r=1

[jaizan]

Jaizan, If it's of any help, I opted to get my Asia (Pacific) exposure through AAIF. It has less exposure to China than most of its peers at 8%, though it does have 23% exposure to Taiwan. (India is included at 7.6%).

Thank you. I own some of those too, but with Hong Kong, the total exposure to greater China is over 37%.
AAS comes in at about 28%.

A couple of years ago, I calculated about 12.4% of my assets were in China, Hong Kong & Taiwan.
Action I've taken since then would have reduced that to below 9%, but the fund managers have been increasing their percentages in what I still hold, so it's over 10%.

[Summerdeep]

Jaizan, If it's of any help, I opted to get my Asia (Pacific) exposure through AAIF. It has less exposure to China than most of its peers at 8%, though it does have 23% exposure to Taiwan. (India is included at 7.6%).

Note, I do hold some global G&I trusts which will also have some exposure to Asia.

I have a substantial holding in AAIF as well. Very welcome dividend uplift recently, share price performance disappointing over the years.

What really alarms me about this trust is its 11% holding in Taiwan Semiconductor, which borders on insanity in my view.

[EthicsGradient]

Jaizan, If it's of any help, I opted to get my Asia (Pacific) exposure through AAIF. It has less exposure to China than most of its peers at 8%, though it does have 23% exposure to Taiwan. (India is included at 7.6%).

Note, I do hold some global G&I trusts which will also have some exposure to Asia.

I have a substantial holding in AAIF as well. Very welcome dividend uplift recently, share price performance disappointing over the years.

What really alarms me about this trust is its 11% holding in Taiwan Semiconductor, which borders on insanity in my view.

If they've held Taiwan Semiconductor for some time, it's somewhat explainable - it's up about 70% this calendar year (imagine what the abrdn Asian Inc share price would look like without it!). The AI boom is no doubt pushing it up, as well as general chip demand.

What I hadn't noticed until recently was just how much Samsung dominates the Korean market - I have the index tracker Vanguard Developed Asia Pacific ex Japan ETF (Australia, New Zealand, Singapore, Hong Kong and Korea - VAPX), and the main "Samsung Electronics Co. Ltd." is over 9% of all that. There's about 4% more, when you drill down into smaller constituents, that are "Samsung something else". Over 40% of the Korean market is Samsung companies - and the main stock hasn't even been very successful recently (in dollar terms, it's about 25% below its Jan 2021 peak).

[jaizan]

What really alarms me about this trust is its 11% holding in Taiwan Semiconductor, which borders on insanity in my view.

Holding around 10% of an Asian fund in TSMC is very common. Many so called "emerging market" funds also have a big holding.

The Asian MSCI indices have it as the number 1 holding. So most of the tracker etfs have it. Then a lot of the active funds and trusts follow this lead with TSMC as the top holding.

The funds have too much in common and not enough choice in my view.