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Asian Equities Sector Wrap

February 2016

Director of Manager Research, AsiaWing Chan

Manager Research AnalystsMark LaidlawGermaine ShareDon Yew

iiFebruary 2016 Asian Equities Sector Wrap

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Contents

Executive Summary 1

Changes to Morningstar Analyst Ratings 2

Navigating Asia: A View Across the Region 4

Volatility and Flows 7

Morningstar Category Introduction – Asia ex-Japan Small/Mid-Cap Equity 8

Morningstar Medalists 10

Appendix 1: People 12

Appendix 2: Portfolio Characteristics 14

Disclosures 16

1February 2016 Asian Equities Sector Wrap


We are pleased to publish this inaugural edition of the “Asian Equities Sector Wrap-Up”, an annual publication that aims to showcase our insights and observations in this dynamic asset class. This follows the completion of our annual review on 47 strategies across four Morningstar categories: Asia ex-Japan equity, Asia Pacific ex-Japan equity, Asia Pacific inc-Japan equity, and the newly created Asia ex-Japan small/mid-cap equity category.

First, we look at changes to our Morningstar Analyst Ratings over the past year. Morningstar analysts follow a globally consistent, five-pillar research framework that forms the backbone of the Morningstar Analyst Rating. Over time, our view of a fund’s merits may change as our conviction levels evolve. This year, in addition to upgrades and downgrades, we also initiated coverage on a number of high quality strategies to provide investors greater choice and diversity in this space.

Next, we look at the key investment themes that we observed during our past manager meetings. Asia is by no means a homogenous market – despite the top-down challenges of slowing economic growth and a strengthening U.S. dollar, the managers that we spoke to are finding opportunities in a wide spectrum of areas, from reform beneficiaries in the key economic powerhouses of China and India, to bottom-up opportunities in markets such as Korea, Taiwan, and the Association of Southeast Asian Nations (ASEAN).

The combination of the first U.S. rate hike in almost 10 years and concerns about slowing economic growth in China has weighed heavily on investor sentiment, with Asian equity markets having experienced heightened volatility and heavy outflows over the past few years. In the section “Volatility and Flows”, we look at fund flow data in recent years and assess the impact that it has on a number of strategies under our coverage.

The subsequent section focuses on the newly created Asia ex-Japan small/mid-cap category and the strategies that we rate in this space. Asian equity investors are often attracted to the asset class for the potential to capture the region’s long-term growth opportunities. Given the dominance of state-owned enterprises and global cyclicals within the large-cap universe, it can be argued that the small/mid-cap universe can provide a purer exposure to domestic, privately run businesses that play a greater role in contributing to economic growth in Asia.

We conclude the report with a list of Morningstar Medalists – that is, funds we believe will outperform peers and/or the relevant benchmark over a full market cycle. Tables summarising key features of our coverage list can also be found at the end of this sector wrap-up, and full copies of our global fund reports are available on Morningstar Direct.

Wing ChanDirector of Manager Research, Asia

Executive Summary



Changes to Morningstar Analyst Ratings

The Morningstar Analyst Rating is a qualitative measure based on Morningstar analysts’ conviction in a fund’s ability to outperform its peer group and/or the relevant benchmark on a risk-adjusted basis over the long term. We evaluate funds based on Morningstar’s proprietary five-pillar methodology, which entails analyzing a fund’s People, Process, Parent, Performance, and Price, key factors we believe are instrumental to a fund’s success. We assign the ratings on a five-tier scale, with three positive Morningstar Medalist ratings of Gold, Silver, and Bronze; a Neutral rating; and a Negative rating.

Over time, our view of a fund’s merits may change as our conviction levels evolve. Changes in a fund’s management team, investment process, or parent company also can affect our opinion. Here, we look at the changes to the Morningstar Analyst Ratings within the Asian equity categories over the past year.

UpgradesIn 2015 we upgraded Schroder ISF Asian Opportunities to the highest Morningstar Analyst Rating of Gold, from Silver. The fund is led by Robin Parbrook, who has 25 years of experience and is supported by one of the deepest and most successful investment teams in the region. His investment acumen, along with the stellar track records on his funds, makes him one of our favourite Asian equity managers. He has steadily applied his quality-growth-focused investment process, which has yielded good results. In addition, the fund is reasonably priced.

The other upgrade saw Robeco Asia Pacific Equities move to a Silver rating from Bronze. Hong Kong-based Arnout van Rijn has proven to be a skilled investor and receives strong support from a stable and high-quality investment team. We like the solid and well-proven investment process in place here that has consistently outpaced both peers and the index. A competitive fee adds to the overall appeal.

DowngradesThree sector heavyweights – Templeton, Aberdeen and Stewart Investors (formally First State Stewart) – all saw downgrades in 2015. Templeton Asian Growth was downgraded to a Negative rating from Neutral. Despite lead manager Allan Lam’s wealth of experience and long tenure on the fund, our conviction in him has weakened significantly. He has failed to deliver for investors in this fund

Mark LaidlawSenior Analyst, Manager Research

and other funds that he manages. More worryingly, we did not see any clear initiatives to salvage the fund. Ineffective and inconsistent execution of the investment process has cost investors, and the fund’s recent devastating showing has weighed heavily on its once-impressive long-term track record. Along with its expensive fees, we believe there are better options for Asia ex-Japan equity exposure.

Both Aberdeen and Stewart Investors slipped from our highest analyst rating of Gold to Silver. Whilst we thought that Aberdeen Asia Pacific Equities still displayed strengths in terms of a long-tenured investment team and consistent process, we believed it was no longer the standout option in this space. In the case of Stewart Investors Asia Pacific and Stewart Investors Asia Pacific Leaders, we shifted the rating downwards following the move in July 2015 to separate the First State Stewarts team into two distinct entities. Although the investment process remained constant, we believed the loss of investment resources supporting the Asian research effort at Stewart Investors meant it was prudent to reduce the ratings on both strategies by one notch. In Nov 2015, both strategies were placed Under Review following the firm’s announcement of proposed portfolio manager changes – most notably, Angus Tulloch stepped back from lead management duties. The changes are expected to be implemented in June 2016 following a transition period. It’s worth noting that we maintained the Gold rating for First State Asian Equity Plus. This strategy is managed by the Hong Kong-based First State Stewart Asia team led by Martin Lau, a team that has remained intact following the splitting of the business in July 2015.

The other downgrade during the year saw L&G Pacific Index slip to Bronze from its previous designation of Silver. Whilst the strategy offers the features expected from a tracker – such as low fees and broad market exposure – we became less convinced it could beat the average fund in the Morningstar Asia-Pacific ex-Japan equity category on risk-adjusted basis over the course of a full market cycle.

Another notable management change during the year was the swapping of the guard at Fidelity South East Asia. Alan Liu, who had been at the helm since 1990, decided to retire and was replaced by Dhananjay Phadnis, who assumed control in March 2015. The fund’s benchmark also changed to the MSCI AC Asia ex Japan, thereby including India in the investable universe. Following a period Under Review, we



reinstated the strategy with a Bronze rating. We believe Phadnis is one to watch at Fidelity, having been impressed by his stock-picking and portfolio-construction abilities whilst running Fidelity Indonesia. This is undoubtedly a step up, but we think investors are in good hands here.

Newton Asia Income saw its rating put Under Review following the May 2015 departure of portfolio manager Jason Pidcock. The firm subsequently announced the merger of its Asian and emerging-markets teams under the leadership of Robert Marshall-Lee, who would also be lead manager here. Although the investment process and support largely remain intact, Marshall-Lee hasn’t previously managed an Asian equity strategy and will need time to familiarize himself with the investment universe and management of an income strategy. Accordingly, we don’t have the same degree of conviction as before and thus have awarded a Neutral rating at this stage.

InitiationsIt was a busy year for initiating coverage with five strategies added in 2015. Within the Asia ex-Japan category Schroder Asian Growth received a Silver rating. Toby Hudson is a savvy manager with 23 years of investment experience, all dedicated to Schroders. He uses a disciplined stock-selection process that has proved successful across a range of Schroders’ strategies, and his investment acumen has been borne out in the fund’s stellar track record. It also has competitive fees. We believe this fund to be one of the most compelling offerings for Singapore-based investors.

Within the same category T. Rowe Price Asian ex-Japan received a designation of Bronze. Lead manager Anh Lu took

charge of the fund in June 2009 and is a veteran at T. Rowe Price, with nearly two decades of experience investing in emerging-Asia equities. She also has a sizable and skilled array of experts to draw on for support. All told, this fund is an attractive source of exposure to Asia ex-Japan equities. In the Asia Pacific inc-Japan category, JPMorgan Pacific Equity was rated Neutral.

Two strategies, Schroder ISF Asian Smaller Companies and Templeton Asian Smaller Companies were initiated at Bronze in the newly created Morningstar Asia ex-Japan small/mid-cap equity category. The Schroder fund is led by Paul Rathband, who has 24 years of investment experience. He joined Schroders in Aug 2011 to reinvigorate the fund, and has succeeded by delivering stellar returns since March 2012. We also like that he is dedicated to managing the small-cap strategy. The quality-growth-focused investment process incorporates sensible risk guidelines, which we believe is particularly important when running a small-cap mandate. In addition, the fund is reasonably priced, making it a solid choice for Asian small-cap exposure.

In the case of Templeton, veteran portfolio allocators Chetan Sehgal and Vikas Chiranewal have managed the fund since its inception and have delivered solid returns here. Their impressive track records on the other funds that they manage give us further confidence in their abilities. They have incorporated sensible tweaks to Templeton emerging-markets group’s investment process to cater for the small-cap mandate. Although the fees could be improved, our conviction in the portfolio allocators makes this one of our preferred options for those seeking exposure to Asian small-cap equities.



Navigating Asia: A View Across the Region

IntroductionMajor economies such as China and India were unsurprisingly at the forefront of discussion among managers under our coverage. However, peripheral Asian economies were also widely discussed, as the end of the commodity super-cycle and spillover effects from China’s growth slowdown had varying impacts.

Greater ChinaGiven China’s substantial weight in regional equity indexes and influence over stocks listed in key market constituents such as Korea and Taiwan, the Chinese market is of upmost importance to managers under our coverage. As China rebalances its economy towards a more sustainable growth path, it has led to the emergence of secular trends such as domestic consumption and state-owned enterprise (SOE) reforms. Many portfolio managers under our coverage universe have positioned their portfolios to gain exposure to these trends.

With domestic consumption expected to be the primary growth engine going forward, different managers have played into the theme in various ways. Some managers preferred investing in e-commerce companies, as they believe this is an underpenetrated market. Alternatively, some managers have elected to invest in companies that manufacture luxury brand automobiles.

SOE reforms have affected a wide range of industries, including financials, specifically banking and insurance. Loans issued by banks have been a primary source of financing for local governments. Announced by the Chinese State Council in 2014 and subsequently launched in 2015, the Local Government Financing Vehicle (LGFV) debt swap program provides better transparency and reduces the risk profile of banks’ loan books. In light of this reform, some managers have begun to reduce their underweight positions in certain state-owned Chinese banks, preferring those with high-quality loan books.

The insurance sector has been of particular interest to managers. The sector has seen increasing demand for insurance products, growing insurance premiums across the board, and supportive government policies while the sector remains underpenetrated. That said, the sector faced cyclical

Don YewAnalystManager Research

headwinds recently, which led some managers to reduce their overweight positions. Against the backdrop of a slowing domestic economy and the competitive nature of the industry, the decline in bond yields could erode the spread insurers earn, which funds guaranteed policy benefits through reinvesting insurance premiums into bonds.

Energy is another sector that has been undergoing reform. Some managers have invested in downstream natural gas distributors, as the Chinese government promotes clean energy consumption and the country gradually moves away from coal power in the midst of severe pollution problems. Given a weak oil-price environment, a number of managers have preferred oil and gas plays with refining and distribution businesses to core producers, as refining and distribution operations stand to benefit from lower input costs.

While Taiwan’s economy has pulled back in part due to China’s growth slowdown, it remains an important market given its weight in regional benchmarks. The key focus here is the information technology sector, which is a core contributor to the country’s economic growth and accounts for almost 60% of the MSCI Taiwan Index. More specifically, managers under our coverage were positive on companies with technological leadership and wide moats, such as one of the world’s largest semiconductor foundries. Managers that we have met view the company’s cost advantage, reasonable valuation, strong management, and ability to expand into adjacent markets favourably. Some managers have invested in companies with exposure to the personal computer market, such as a supplier of PC components, as they expect falling PC demand to bottom out.

Like Taiwan, Hong Kong’s economy is intertwined with China’s and has witnessed a slowdown. However, managers have been able to identify high-quality companies that are less affected by China’s slowing growth. For example, some of the managers spoke favourably of commercial property developers, arguing that supply continued to tighten and an increasing number of mainland companies were setting up offices in Hong Kong. The banking sector also received interest from some of the managers that we met, particularly high-quality banks with large deposit bases, as they stand to benefit from rising U.S. interest rates.



IndiaReforms Ied by Indian Prime Minister Narendra Modi have brought about the emergence of several secular themes across various sectors. The consensus among managers under our coverage is that the economy is heading in the right direction, but the pace of improvement has been slower than expected, as some of the corporate governance issues are deeply rooted to the corruption-rife and bureaucratic business culture.

One of the more prominent investment opportunities emerging from the widespread Modi-led reforms is within the banking sector. Most managers that we have spoken to believe that better-run private-sector banks, which generally have stronger balance sheets, will be able to wrestle market share from their public counterparts, driven by public banks’ deteriorating asset quality, lack of capital adequacy, and dominant deposit market share of approximately 70%. However, they have been selective when investing in private-sector banks, preferring high-quality names that practise prudency when building out their loan portfolios.

Another sector that has garnered strong interest is infrastructure. Most managers believe that the capital spending cycle will turn positive as economic growth accelerates. Interestingly, they have elected to participate in this theme through investments in derivative plays such as cement producers, rather than ownership of companies that develop the infrastructure.

The consumer sector was another widely discussed topic given the rising income levels. While some managers preferred to gain exposure to rising domestic consumption through multinational consumer staple companies with very strong brand equity, others have chosen to invest in consumer discretionary companies. One example given was a leading auto manufacturer with a strong sports bike franchise that is also the sole supplier of three-wheelers in the country.

Given India’s position as one of the leading players in the global pharmaceutical industry, it is unsurprising that a number of pharmaceutical companies were common holdings in managers’ portfolios. This includes a leading branded generic drug manufacturer with a strong domestic business. Some managers also identified a company with an expanding international presence, particularly in the U.S., as they favour management’s long-term strategy.

KoreaCorporate governance and alignment of shareholder interest have been primary concerns when managers look to invest in Korea. However, the recent revision of corporate tax code, which incentivizes companies to accelerate investment spending and dividend payments, has led to higher conviction in the country among some of the managers under our coverage. While some managers believe that majority family-owned businesses (“Chaebol”) have improved their treatment of minority shareholders, others remain skeptical that government reforms will be effective in breaking down chaebol dominance and improving corporate governance.

China is Korea’s biggest export partner. Inevitably, China’s economic slowdown has had a negative impact on Korea’s economy. Thus, some managers have chosen to invest in companies within the services sectors, such as convenience shops and cosmetics firms, arguing that they are more insulated from Korea’s export growth slowdown.

ASEANOn the back of China’s economic slowdown and surprising move to devalue its currency in August 2015, the largely export-dependent ASEAN market has suffered as the MSCI Southeast Asia Index returned negative 18.5% in U.S. dollar terms in 2015. Despite the headwind within these markets, managers have taken an idiosyncratic view of the region and are constructive on countries with favourable demographics, positive secular trends, and lower exposure to cyclical sectors such as energy.

Given expensive valuations and the country’s unfavourable position as a net exporter of commodities, most managers that we met with disliked Malaysia. On the other hand, Thailand was a popular choice among managers, especially the banking sector, which offered companies with strengthening balance sheets and increasing dividend payout ratios. Thailand also was noted for its young and productive labour force, which provides a strong underpinning for its role as a major manufacturing hub in the region, and for foreign direct investment.

Elsewhere, Indonesia has also been a hot topic among managers that we have met. On the back of President Joko Widodo’s reform initiatives, some managers have built their Indonesian exposure around sectors that will be primary beneficiaries, such as banking and infrastructure. With regards to Singapore, some managers have noted the country’s stable political environment and high standards of corporate governance as positive investment traits. Most managers were particularly constructive on the banking sector, as it offers high-quality banks with diversified non-lending businesses and a strong capital base.



AustraliaAmong managers that we have met there has also been a lot of discussion around Australia, particularly its banking sector, which makes up a substantial part of the Australian market and which has been negatively affected by a slowdown in residential property lending. As such, managers with Australian banking exposure have been selective, preferring companies with diversified businesses and cost advantage. Some managers have also noted that currency devaluation and relatively expensive valuations have been deterrents to investing in the country.

ConclusionGovernment reform policies have been the primary driver of investment opportunities in Asia ex-Japan. At the country level, managers under our coverage have focused their attention on India, where sweeping reforms have affected a number of sectors, and China, where reforms aimed at driving domestic consumption have been favourable for the insurance and consumer sectors. In Korea, the government’s

push for improved corporate governance has reinvigorated some managers’ interests in companies within the country. On the other hand, managers have avoided countries that are overly dependent on specific sectors, such as Malaysia and Australia, whose economies are tied closely to commodity prices.

At the sector level, most managers were less constructive on cyclical industries such as energy and basic materials, preferring to own only higher-quality companies with strong balance sheets and cost advantages. Conversely, stricter capital rules imposed by central banks have led managers to reassess the banking sector, as they prefer banks with high-quality assets and a strong capital base.

Despite a lower-growth environment in Asia, managers under our coverage have taken a longer-term view within their portfolios, focusing on bottom-up opportunities and betting on secular trends that arise from the various reform agendas and structural developments in Asia.



Volatility and Flows

Volatility and Investor FlowsAsian equity markets have seen a distinct spike in volatility over the past few years, and indications are that this behaviour will remain for the foreseeable future. Factors such as concerns over China’s economic slowdown (will it be a hard landing or soft), muted global growth, and a divergence in global monetary policy are all playing on the minds of investors. As a consequence, we have witnessed massive swings in investor mindsets, ranging from exuberance to virtual capitulation. These swings are captured below in Figure 1, which shows net flows for the four main Morningstar Asian equities categories over the period 2013-15.

Notwithstanding some positive periods, namely the beginning of 2013 and the mid-part of 2014, the sentiment towards Asian equities has been broadly negative across this period, resulting in a consistent pattern of outflows from the sector. These outflows increased over the course of 2015, reaching their peak in the second and third quarters of the year. During this period, concerns grew over China’s ability to engineer a soft landing for its economy. Investors were particularly spooked when the Chinese government decided

Figure 1: Asian Equities Estimated Net Asset Flows by Quarter 2013-2015 (USD Bil.)

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Asian Equities Estimated Net Asset Flow by Quarter 2013 - 2015, USD Billions

Asia ex-Japan Small/Mid-Cap Equity Asia ex Japan Equity Asia-Pacific inc. Japan Equity Asia-Pacific ex-Japan Equity

Source: Morningstar Direct

to devalue the renminbi in early August, catching most market participants off-guard. Anecdotally, a number of managers we spoke to said this was seen as a tipping point for investors who, whilst positive on the longer-term positive dynamics that make Asian equities appealing, used this as a signal to reduce their exposure to the sector, as shown by the spike in outflows. It remains to be seen whether this will also turn out to be a turning point in terms of increased confidence and conviction towards Asian equities.

This impact has also been felt at the individual manager level, nowhere more so than the Negative-rated Templeton Asian Growth, managed by Allan Lam. At the start of 2013 the strategy had almost USD 19 billion in assets, a figure that had dropped to below USD 5 billion by the end of 2015. To put this in context, there were three quarters in this span when net flows were negative in excess of a billion dollars. One consequence is that the manager is then forced to sell more-liquid high-conviction names within the portfolio in order to meet redemption requests in a timely manner. But Templeton is not alone in having to deal with the issue of large outflows from its Asian equities strategies. Aberdeen, a sector heavyweight and a long-term Morningstar favourite in this space, has also had to deal with significant outflows. In the year to the end of Sept 2014 the firm had experienced net outflows of USD 8.6 billion at the strategy level. In the case of Aberdeen, the investment team has managed to deal with this in an orderly fashion and did not resort to significant sell-downs of favoured positions to meet client redemption requests.

Given the weight of a strong U.S. dollar and continual concerns about slowing growth in the region, volatility is expected to stay and flows are therefore anticipated to continue to swing sharply both positive and negative in line with changing risk appetite. Those investors who can manage to stay the course, particularly during times when valuation is at multiyear lows, ultimately will benefit from the long-term gains that the region potentially offers. Those who choose to exit, only to return later, won’t enjoy the full level of upside over the long term.




Morningstar Category Introduction – Asia ex-Japan Small/Mid-Cap Equity

As part of Morningstar’s ongoing efforts to ensure funds are categorized according to robust and relevant peer groups, we undertake a semi-annual review and implement changes at the end of April and October each year. The latest review, finalized in Oct 2015, resulted in the creation of the Asia ex-Japan small/mid-cap category. Below, we look at the rationale behind this move and our preferred managers in this space.

We have seen the universe of Asian equity strategies available to investors expand over time, and continue to be dominated by funds focused on the largest stocks in the market-by-market capitalization. By definition, small caps typically encompass those listed companies that fall in the bottom 30% of market capitalization in the Asian equity universe. The two investment universes are distinct in terms of diversity, liquidity, and valuations, as well as country and sector weightings.

It can be argued that small caps offer a purer way to capture the favourable demographics and long-term growth story that investors in Asian equities are hoping to capture. The argument is that small caps, by their nature, tend to be more domestically oriented, entrepreneurial in nature, and have closer alignment to a country’s economic potential. In contrast, large-cap companies across Asia tend to be more regionally or even globally focused, especially index

heavyweights in the information technology, energy, and material sectors. In addition, these sectors are typically dominated by SOEs, which, according to many of the managers we cover, are generally less well run than their private-sector peers. Small caps’ appeal lies in capturing the champions of tomorrow before they become ex-growth.

Small caps historically have been seen offering higher potential rewards for investors, albeit with an increased inherent level of underlying risk — the so called “small caps effect”. Part of the rationale behind this is that small caps are typically less covered by the sell-side compared with large caps. It can be argued that this trend is even more pronounced in Asia compared with the major developed markets across the globe. Historically, small caps have tended to rise higher than large caps when markets are enjoying gains. At the same time, the inherent increased risk involved with small caps means that market losses tend to be felt more fully at the smaller end of the market-cap spectrum, as investors perceive large caps as offering greater relative protection in times of market duress.

It is worth taking a look at how the small-cap universe differs from that of large caps. This is best illustrated by looking at the country and sector breakdown of the MSCI AC Asia ex-Japan and MSCI AC Asia ex-Japan Small indexes. As shown in Figure 2:


Figure 2: Country Breakdown: Small Caps Versus Large Caps, MSCI AC Asia ex-Japan Index

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MSCI AC Asia Ex Japan NR USD31/12/2015

MSCI AC Asia Ex JPN Small NR USD31/12/2015

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alaysia %

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an %




Figure 3: Sector Breakdown: Small Caps Versus Large Caps, MSCI AC Asia ex-Japan Index

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MSCI AC Asia Ex Japan NR USD31/12/2015

MSCI AC Asia Ex JPN Small NR USD31/12/2015


The large-cap index is dominated by its weighting towards China, which is logical given the amount of SOEs that dominates the Chinese equity market. We can see that the small-cap index is more diverse in terms of country constituents and it offers a greater relative exposure to countries such as Korea, Taiwan, India, and Singapore. The differences at the sector level are shown in Figure 3.

Once again, we can see that the large-cap index has a greater concentration at the sector level — in this case financials and information technology, which combined make up over 50% of the total index. Financials is also the largest index constituent in the small-cap space, but it is nowhere near as dominant. Within the financials exposure, the large-cap index has a heavier skew towards banks and insurers, with index heavyweights such as AIA, China Construction Bank, and ICBC. Small-cap financials has a greater relative weighting towards REITs and property developers, highlighting the more domestic-related focus we see in the small-cap index. The small-cap index also has a meaningful exposure to other sectors such as consumer discretionary and industrials, as well as information technology. The small-cap index is much more diversified, with the top 10 index constituents making up only 3.2% of

the total index, compared with 22.6% for the large-cap index.

Following the introduction of the Asia ex-Japan small/mid-cap equity category, Morningstar currently has qualitative coverage of four strategies in this space, three of whom are medalists: Macquarie Asia New Stars, Schroder ISF Asian Smaller Companies, and Templeton Asian Smaller Companies (all with a Bronze rating). Each strategy demonstrates strengths in areas such as investment team, robust investment process, and consistent long-term performance. Attractive investment ideas are those likely to have qualities such as liquidity, strong corporate governance, and balance sheet strength. Capacity is an important consideration for both the fund manager (strongly tied to liquidity factors) and investors alike.

We expect the universe to increase over time as more asset managers introduce strategies that focus on the smaller end of the market-cap spectrum, looking to capture the benefits that come from investing in this space. Accordingly, we expect our coverage here to increase and look forward to initiating coverage on strategies here, ensuring we are able to add value for investors.



Morningstar Medalists

Investment strategies with Morningstar Analyst Ratings of Gold, Silver, or Bronze are considered to be Morningstar Medalists. These are the strategies that have notable advantages across several or all of the five pillars in our ratings methodology, giving our analysts the conviction in the fund’s ability to outperform its peer group and/or relevant benchmark over a full market cycle.

Our less-preferred funds receive a rating of Neutral or Negative on the five-tier ratings scale. Neutral-rated funds are those that we believe are not likely to deliver standout returns, but also are not likely to significantly underperform. Negative-rated funds are those that have at least one flaw likely to hamper future performance and are considered as inferior offerings to their peers.

Table 1: Asia ex-Japan EquityISIN Fund Strategy Morningstar Analyst Rating™

LU0048388663 Schroder ISF Asian Opp A Inc Gold

GB0031141913 Investec Asia ex Japan A Acc Net Silver

LU0345776255 Investec GSF Asian Eq A Inc USD Silver

LU0491816475 Matthews Asia Funds Pacific Tiger I USD Silver

GB00B284G093 Schroder Asian Alpha Plus A Acc Silver

SG9999000327 Schroder Asian Growth SGD Silver

LU0048597586 Fidelity South East Asia A-USD Bronze

IE0030382026 Invesco Asian Equity C Bronze

IE00B431KK76 JOHCM Asia ex-Japan A EUR Inc Bronze

LU0181495838 Schroder ISF Emerg Asia A Bronze

LU0266341725 T. Rowe Price Asian ex-Japan Eq I USD Bronze

KYG931731056 Value Partners High-Dividend Stocks Bronze


Table 2: Asia-Pacific ex-Japan EquityISIN Fund Strategy Morningstar Analyst Rating™

IE00B067MR52 First State Asian Eq Plus I Acc Gold

SG9999002083 First State Dividend Advantage Gold

LU0011963245 Aberdeen Glb Asia Pac Eq A2 Silver

GB00B0TY6S22 Stewart Invs Asa Pac Sstnbty A Acc GBP Silver

IE00B02ZFR42 Veritas Asian A EUR Silver

GB00B08HD695 BlackRock Pacific Ex Japan Eq Tkr L Acc Bronze

GB0033028225 IP Asian Acc Bronze

GB0002050218 L&G Pacific Index R Acc Bronze

GB0031956807 M&G Asian X Acc Bronze

SG9999001846 Schroder Asian Equity Yield A Bronze

GB0007809600 Schroder Asian Income Acc Bronze

LU0188438112 Schroder ISF Asian Eq Yld A Acc Bronze





Table 3: Asia-Pacific inc-Japan EquityISIN Fund Strategy Morningstar Analyst Rating™

GB00B0XWNJ21 Aberdeen Asia Pacific and Japan Eq A Acc Silver

LU0084617165 Robeco Asia Pacific Equities D EUR Silver

LU0049112450 Fidelity Pacific A-USD Bronze

LU0491818331 Matthews Asia Funds Asia Dividend I USD Bronze


Table 4: Asia ex-Japan Small/Mid-Cap EquityISIN Fund Strategy Morningstar Analyst Rating™

KYG5760E1439 Macquarie Asia New Stars A1 Bronze

LU0227179875 Schroder ISF Asian Smaller Coms A Bronze

LU0390135415 Templeton Asian Smaller Coms A Acc EUR Bronze




Appendix 1: PeopleEAA OE Asia ex-Japan Small/Mid-Cap Equity

Name ISINMorningstar Rating Overall

Global Fund Report Analysis Date Manager Name

Manager Tenure (Longest)

HK0000055647 JPMorgan Eastern Smaller Companies Neutral 10/11/2015 Joanna Kwok;Rajendra Nair; 6.33

KYG5760E1439 Macquarie Asia New Stars A1 Bronze 1/12/2015 John Bugg;Sam Le Cornu; 7.33

LU0227179875 Schroder ISF Asian Smaller Coms A Bronze 29/12/2015 Paul Rathband 3.92

LU0390135415 Templeton Asian Smaller Coms A Acc EUR Bronze 27/12/2015 Mark J. Mobius 7.33

EAA OE Asia ex Japan Equity




LU0072462343 BGF Asian Dragon A2 Neutral 13/4/2015 Andrew Swan 3.25

LU0054237671 Fidelity Asian Special Sits A-USD Neutral 22/6/2014 Suranjan Mukherjee 3.58

LU0329678410 Fidelity Emerging Asia A-Acc-EUR Bronze 9/7/2015 Teera Changpongsang 7.83

GB0003879185 Fidelity South East Asia Bronze 9/7/2015 Teera Changpongsang 2.08

LU0048597586 Fidelity South East Asia A-USD Bronze 1/6/2015 Dhananjay Phadnis 0.92

IE0030382026 Invesco Asian Equity C Bronze 23/12/2015 Stuart Parks 18.00

GB0031141913 Investec Asia ex Japan A Acc Net Silver 22/1/2016 Greg Kuhnert 11.33

LU0345776255 Investec GSF Asian Eq A Inc USD Silver 22/1/2016 Greg Kuhnert 11.33

IE00B431KK76 JOHCM Asia ex-Japan A EUR Inc Bronze 11/12/2015 Samir Mehta 4.42

LU0491816475 Matthews Asia Funds Pacific Tiger I USD Silver 29/11/2015 Sharat Shroff;Rahul Gupta; 5.83

GB00B284G093 Schroder Asian Alpha Plus A Acc Silver 5/8/2015 Matthew Dobbs 8.25

SG9999000327 Schroder Asian Growth SGD Silver 14/7/2015 Toby Hudson 8.67

LU0048388663 Schroder ISF Asian Opp A Inc Gold 24/11/2015 Robin Parbrook 5.33

LU0181495838 Schroder ISF Emerg Asia A Bronze 10/8/2015 Louisa Lo 12.08

LU0266341725 T. Rowe Price Asian ex-Japan Eq I USD Bronze 24/1/2016 Anh Lu 6.75

LU0029875118 Templeton Asian Growth A Ydis USD Negative 18/12/2015 Mark J. Mobius;Allan Lam; 24.67

KYG931731056 Value Partners High-Dividend Stocks Bronze 12/11/2015 Not Disclosed

EAA OE Asia-Pacific inc. Japan Equity




GB00B0XWNJ21 Aberdeen Asia Pacific and Japan Eq A Acc Silver 14/12/2015 Hugh Young, Flavia Cheong 27.25

LU0348783233 Allianz Oriental Income A Neutral 1/1/2015 Stuart Winchester;Ian Lee; 16.08

LU0049112450 Fidelity Pacific A-USD Bronze 23/9/2015 Dale Nicholls 12.42

LU0052474979 JPMorgan Pacific Equity A (dist) USD Neutral 29/12/2015 Aisa Ogoshi;Robert Lloyd;Mark Davids; 3.67

HK0000055746 JPMorgan Pacific Securities (acc) - USD Neutral 29/12/2015 Aisa Ogoshi;Mark Davids;Robert J. Lloyd; 3.67

LU0491818331 Matthews Asia Funds Asia Dividend I USD Bronze 31/8/2014 Yu Zhang;Robert J. Horrocks;Vivek Tanneeru; 4.92

LU0084617165 Robeco Asia Pacific Equities D EUR Silver 8/10/2015 Arnout Rijn, van 8.33



EAA OE Asia-Pacific ex-Japan Equity




GB00B0XWNF82 Aberdeen Asia Pacific Equity A Acc Silver 14/12/2015 Hugh Young, Flavia Cheong 26.00

LU0011963245 Aberdeen Glb Asia Pac Eq A2 Silver 14/12/2015 Hugh Young, Flavia Cheong 27.25

GB00B08HD695 BlackRock Pacific Ex Japan Eq Tkr L Acc Bronze 27/7/2015 Debra L. Jelilian 10.50

LU0205439572 Fidelity Asia Pacific Dividend A-USD Neutral 9/7/2015 Polly Kwan 6.33

IE00B067MR52 First State Asian Eq Plus I Acc Gold 7/12/2015 Martin Lau;Richard Jones; 12.58

SG9999002083 First State Dividend Advantage Gold 6/12/2015 Martin Lau;Richard Jones; 11.25

GB0033028225 IP Asian Acc Bronze 22/12/2015 Stuart Parks;William Lam; 11.08

HK0000151800 JPMorgan Asia Eq Div (acc) - HKD Neutral 29/12/2015 Jeffrey Roskell;Julie Ho;Ruben Lienhard; 2.67

GB0002050218 L&G Pacific Index R Acc Bronze 27/7/2015 Not Disclosed

GB0031956807 M&G Asian X Acc Bronze 30/3/2015 Matthew Vaight 8.00

GB00B0MY7207 Newton Asian Inc Inst Acc Neutral 3/9/2015 Not Disclosed

SG9999001846 Schroder Asian Equity Yield A Bronze 9/12/2015 King Fuei Lee 10.97

GB0007809600 Schroder Asian Income Acc Bronze 16/7/2015 Richard Sennitt 14.25

LU0188438112 Schroder ISF Asian Eq Yld A Acc Bronze 9/12/2015 King Fuei Lee 11.67

GB0033874214 Stewart Inv Asia Pac Ldrs A Acc GBP Under Review 8/11/2015 Angus Tulloch;David Gait; 12.17

GB0030183890 Stewart Investors Asia Pacific A Acc GBP Under Review 8/11/2015 Angus Tulloch;David Gait; 27.67

GB00B0TY6S22 Stewart Invs Asa Pac Sstnbty A Acc GBP Silver 15/6/2015 David Gait;Sashi Reddy; 10.17

GB0001441020 Threadneedle Asia Inst Net GBP Neutral 4/1/2015 Vanessa Donegan 14.00

IE00B02ZFR42 Veritas Asian A EUR Silver 29/9/2015 Ezra Sun 11.33



Appendix 2: Portfolio CharacteristicsEAA OE Asia ex-Japan Small/Mid-Cap Equity

ISIN Name Portfolio Date# of Holdings

(Long)Equity Style

Box (Long)

Tracking Error 3 Yr (Mo-End)

USDActive

Share **

Est Fund-Level Net Flow

1 Yr (Mo-End) (USD)

Annual Report Net Expense

Ratio *

HK0000055647 JPMorgan Eastern Smaller Companies 30/11/2015 117 5.24 94.54 -25,276,951.89 1.69

KYG5760E1439 Macquarie Asia New Stars A1 31/12/2014 83 6.56 95.51 150,090,149.44 2.22

LU0227179875 Schroder ISF Asian Smaller Coms A 31/12/2015 69 8.60 96.51 -16,710,320.54 1.96

LU0390135415 Templeton Asian Smaller Coms A Acc EUR 30/11/2015 99 7.18 96.65 117,741,907.36 2.22

EAA OE Asia ex Japan Equity


(Long)Equity Style

Box (Long)

Tracking Error3 Yr (Mo-End)

USDActive

Share **

Est Fund-Level Net Flow

1 Yr (Mo-End) (USD)


Ratio *

LU0072462343 BGF Asian Dragon A2 31/12/2015 70 3.37 72.22 827,033,862.02 1.87

LU0054237671 Fidelity Asian Special Sits A-USD 31/12/2015 87 3.12 73.31 123,960,293.60 1.94

LU0329678410 Fidelity Emerging Asia A-Acc-EUR 31/12/2015 76 7.12 80.86 225,296,782.11 1.95

GB0003879185 Fidelity South East Asia 31/12/2015 92 3.48 61.76 -313,195,885.47 1.74

LU0048597586 Fidelity South East Asia A-USD 31/12/2015 79 3.93 68.83 -904,871,294.59 1.93

IE0030382026 Invesco Asian Equity C 31/12/2015 63 3.20 69.20 119,125,977.20 1.37

GB0031141913 Investec Asia ex Japan A Acc Net 31/12/2015 79 2.86 67.56 10,405,866.75 1.75

LU0345776255 Investec GSF Asian Eq A Inc USD 31/12/2015 78 2.79 67.55 -173,805,456.60 2.05

IE00B431KK76 JOHCM Asia ex-Japan A EUR Inc 31/12/2015 37 7.92 89.31 272,838,623.01 1.11

LU0491816475 Matthews Asia Funds Pacific Tiger I USD 30/9/2015 60 5.04 80.43 -176,200,267.40 1.30

GB00B284G093 Schroder Asian Alpha Plus A Acc 31/12/2015 74 4.65 74.29 -50,655,859.35 1.71

SG9999000327 Schroder Asian Growth SGD 30/6/2015 62 3.46 72.27 17,021,285.19 1.38

LU0048388663 Schroder ISF Asian Opp A Inc 31/12/2015 100 6.02 77.45 163,686,321.15 1.93

LU0181495838 Schroder ISF Emerg Asia A 31/12/2015 89 3.76 68.74 -281,048,522.41 1.94

LU0266341725 T. Rowe Price Asian ex-Japan Eq I USD 31/12/2015 91 4.07 72.53 -366,522,472.23 1.07

LU0029875118 Templeton Asian Growth A Ydis USD 30/9/2015 53 8.00 94.98 -4,499,734,141.27 2.21

KYG931731056 Value Partners High-Dividend Stocks 30/6/2015 165 5.48 88.73 984,039,876.59 4.09

EAA OE Asia-Pacific inc. Japan Equity


(Long)Equity Style

Box (Long)


USDActive

Share **

Est Fund-LevelNet Flow

1 Yr (Mo-End) (USD)

Annual ReportNet Expense

Ratio *

GB00B0XWNJ21 Aberdeen Asia Pacific and Japan Eq A Acc 31/12/2015 78 4.53 82.72 -74,139,488.60 1.95

LU0348783233 Allianz Oriental Income A 31/12/2015 100 5.96 98.73 -67,677,313.96 1.84

LU0049112450 Fidelity Pacific A-USD 31/12/2015 228 6.32 94.16 149,703,503.73 1.92

LU0052474979 JPMorgan Pacific Equity A (dist) USD 31/12/2015 65 3.64 82.48 47,152,366.91 1.90

HK0000055746 JPMorgan Pacific Securities (acc) - USD 30/11/2015 65 3.40 82.57 -44,794,756.04 1.67

LU0491818331 Matthews Asia Funds Asia Dividend I USD 30/9/2015 65 3.62 90.72 -254,583,487.63 1.30

LU0084617165 Robeco Asia Pacific Equities D EUR 30/11/2015 89 5.43 82.90 -201,473,830.96 1.67



EAA OE Asia-Pacific ex-Japan Equity


(Long)Equity Style

Box (Long)


USDActive

Share **

Est Fund-LevelNet Flow

1 Yr (Mo-End) (USD)


Ratio *

GB00B0XWNF82 Aberdeen Asia Pacific Equity A Acc 31/12/2015 66 5.13 81.39 -1,081,766,856.63 1.94

LU0011963245 Aberdeen Glb Asia Pac Eq A2 31/12/2015 61 4.83 82.06 -2,580,411,125.87 2.01

GB00B08HD695 BlackRock Pacific Ex Japan Eq Tkr L Acc 31/1/2016 603 3.02 35.84 103,350,880.61 0.24

LU0205439572 Fidelity Asia Pacific Dividend A-USD 31/12/2015 104 3.08 65.52 -55,968,692.09 1.94

IE00B067MR52 First State Asian Eq Plus I Acc 31/12/2015 71 5.62 82.05 349,813,698.84 1.69

SG9999002083 First State Dividend Advantage 30/6/2015 2 5.64 N/A 331,295,046.51 1.69

GB0033028225 IP Asian Acc 31/12/2015 62 3.87 N/A -44,669,452.59 1.70

HK0000151800 JPMorgan Asia Eq Div (acc) - HKD 30/11/2015 77 74.17 1,342,391,195.09 1.63

GB0002050218 L&G Pacific Index R Acc 31/12/2015 554 2.80 35.84 -80,160,732.31 0.86

GB0031956807 M&G Asian X Acc 31/12/2015 72 5.01 86.68 -66,623,118.05 1.73

GB00B0MY7207 Newton Asian Inc Inst Acc 31/12/2015 61 6.98 90.42 -3,465,520,394.85 1.07

SG9999001846 Schroder Asian Equity Yield A 30/6/2015 58 4.35 81.82 -46,666,646.89 1.75

GB0007809600 Schroder Asian Income Acc 31/12/2015 84 4.16 78.71 316,542,602.04 1.68

LU0188438112 Schroder ISF Asian Eq Yld A Acc 31/12/2015 64 4.77 79.25 -458,205,024.41 1.92

GB0033874214 Stewart Inv Asia Pac Ldrs A Acc GBP 31/12/2015 51 5.74 86.04 345,560,626.21 1.55

GB0030183890 Stewart Investors Asia Pacific A Acc GBP 31/12/2015 83 5.94 87.11 -139,310,247.09 1.87

GB00B0TY6S22 Stewart Invs Asa Pac Sstnbty A Acc GBP 31/12/2015 52 7.07 92.27 2,033,096.66 1.70

GB0001441020 Threadneedle Asia Inst Net GBP 31/12/2015 118 2.77 57.09 8,065,903.45 1.09

IE00B02ZFR42 Veritas Asian A EUR 31/12/2015 44 4.44 79.11 -73,563,277.24 1.24

** Against the Morningstar Category Index based on the most recent portfolio* KIID Ongoing charge is used where annual report net expense ratio is not available



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