By Neil Johnson
The unravelling of the commodities supercycle has seen investors moving away from large state-owned defensive stocks, such as in energy and mining.
Meanwhile, mid cap technology and consumer-related businesses in the private sector offer greater growth appeal, long-term returns and amenable management.
Citywire Asia asked APAC equities fund managers for their views on the future of mid cap and large cap investing in Asia.
Andrew Swan, BlackRock
Head of Asian equities
The history of Asia is that mid caps tend to outperform large caps over the cycle, and so we have a bias towards mid cap companies.
There are some good large companies around, but by focusing more on mid caps we’re effectively saying we’re not focused on the benchmark, which mainly represents larger firms.
So we see better opportunity in mid cap companies, which tend to be less well researched and have more opportunities for growth, whether by product or geography, so there’s an opportunity in that space more than large caps to find really good investments.
Toby Hudson, Schroders
We’re very firm believers in Asia, but you have to take an unconstrained view when investing in Asian equities. We think that indices and benchmarks that people look at in Asia have typically been lousy investments and for understandable reasons, the Asian large caps that dominates industry in the main markets are typically state-owned enterprises in China or large Chaebol industrial groups in Korea.
And the way to make money in Asia is to take a very unconstrained approach and get away from benchmarks and really look at the world on a very granular, bottom-up basis.
Over the years we’ve typically had success in the mid-cap space. The fund generally runs quite a large underweight in the mega caps because they tend to be Chinese banks or the Samsungs – the big ugly dinosaurs – and the more dynamic entrepreneurial, private sector companies tend to be in the mid-cap space, the $2-10 billion market cap, and have stocks with good growth momentum and that haven’t been fully discovered by the market yet.
I like investing in companies where I can meet the CEO and the CFO, the guys who make the decisions, because the world is a very uncertain place and who knows what it’s going to look like in two or three years, but if I can understand the mindset of the people running a company then I can get an idea of how they’re going to respond to change, how they’re likely to behave over the next few years.
But investing in a government-owned oil company, for example, decisions are made by ministers who come and go, they’re based on the whims of the economic mood of a country, they’ve got nothing to do with what a minority shareholder might be interested in, and what’s more I’m probably never going to get to meet the CEO or CFO, if you’re lucky you get to meet one of the army of IR guys. So there are lots of reasons why mid caps are interesting, they tend to be more entrepreneurial, they also tend to be focused in sectors that aren’t dominated by global cyclicals, but more domestic exposure.