Long-term outperformance and wide discount: Schroder Asia Pacific

SDP’s long-term outperformance and wide discount could provide an attractive entry point to the asset class…by Ryan Lightfoot-Aminoff

Overview

Schroder AsiaPacific’s (SDP) portfolio is populated using a bottom-up stock selection process driven by the experienced management team of Abbas Barkhordar and Richard Sennitt. They leverage the extensive resources of the wider Schroders network to identify a concentrated number of high-quality, primarily large-cap companies from across the Asian region.

The region has undergone a period of notable volatility in the past few years, and the managers have capitalised on this in the near term to tweak the Portfolio allocations, adding to quality names at attractive valuations. For example, Abbas and Richard have had a long-standing underweight to China, which has been positive for performance over the long term. However, during a challenging period for the country in early 2024, the managers added selectively to some high-quality, industry leaders at attractive valuations, which has helped narrow this underweight. Furthermore, they also capitalised on the country’s rally in late 2024 to sell some other holdings that had performed well, though the managers remained concerned over the industry backdrop. Despite this, China remains a notable underweight allocation.

Despite the near-term volatility in wider markets, including surrounding the recent tariff announcements, SDP has delivered strong, long-term returns versus its benchmark, having outperformed in six of the past nine years by an average level of 4.4 percentage points. Cumulatively, the trust is over nine percentage points ahead over five years. The majority of the trust’s long-term performance has been a result of good stock selection, which has often helped drive outperformance even when positioning has been less favourable.

This strong performance track record has not been reflected in the current Discount, which is close to one standard deviation wider than the five-year average at the time of writing. This is despite the board having undertaken a considerable, NAV accretive buyback programme over several years.

Analyst’s View

 
Despite the tariff-induced market volatility earlier in the year, Asian markets have delivered strong returns in 2025 so far. We believe this has demonstrated the strength of the fundamental reasons to invest in the region, namely the major contribution to global growth and high number of industry-leading firms, the sort of which are likely to feature heavily in SDP’s portfolio due to Abbas and Richard’s quality focus (see Portfolio).

The managers had argued that the negativity towards Asia was largely priced in and that the predominant risk to investors was to the upside. This has been proven correct, with the market having rallied strongly in the past few months, and SDP delivering strong absolute performance in the near term, driven by the portfolio of high-quality firms in critical industries, which have offered resilience in the current environment.

Furthermore, we believe the recent activity is a good example of the level of pragmatic portfolio management that supports the investment case for SDP as a long-term allocation to Asia. Richard and Abbas have made sensible allocation changes when opportunities have arisen, capitalising on attractive valuations of quality companies in the market volatility and selling them when the price has risen.

We think the investment case is further enhanced by the current Discounton the trust. The level is wide versus the trust’s own history, and as such, could provide a compelling entry point for long-term investors.

Bull

• Strategy has delivered long-term outperformance of benchmark over numerous periods
• Experienced management team, supported by well-resourced analyst network
• Trust is currently trading at a discount to NAV

Bear

• Trust remains underweight China which could be a headwind should the country rally again
• Asian region is facing potential pressure from US tariff regime
• Trust has modest gearing which can exacerbate downside as well as upside potential

See the full research on SDP here >
 

Disclaimer

This is a non-independent marketing communication commissioned by Schroder Investment Management. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.