As we approach the end of the year, thoughts generally turn to what the markets are likely to do in the year ahead. Focus should be on those areas of risk and of opportunity. The coronavirus pandemic and Brexit will remain two of the key areas of trouble for UK investors. Opportunity, on the other hand, may lie in Asia. This part of the world seems to have suffered less from the pandemic, thanks partly to its ability to put in place testing systems in the wake of SARS in 2003. Asian economies seem to be getting back on track. We see growth opportunities here.
Investment trusts can be a good way to get exposure to stock performance in a region where an investor is unfamiliar or where the scope to do your own research is limited due to language challenges.
China looks well placed for growth in 1H 2021
China seems to have shrugged off the pandemic and is getting back to work. It is no surprise that of the Asia single country investment trusts listed in London, that the top performers are focused on China. There are really two leaders in this pack if you want China-focused exposure. The JPMorgan China Growth & Income (LON:JCGI) has done extremely well this year, up nearly 100% over 12 months. This is a massive achievement, given the year we have been having.
Bear in mind however, that the trust is trading at a 2% premium at the moment, and is also using gearing (14%). It is also slightly more expensive in terms of fees than its nearest competitors. But it has a track record stretching back to 1993 and has averaged over 30% in the last 10 years. We are adding it to our watch list for 2021.
Trading at a marginal discount (-0.4%) is the Fidelity China Special Situations (LON:FCSS) investment trust, up over 77% in the last 12 months. It is a bigger beast than JPMorgan’s offering, with over £2.4bn in AuM. It is cheaper, which may be why the institutional market prefers it, but it is also carrying a higher level of gearing than most Asia single country investment trusts.
Baillie Gifford has its own China single country offering, the Baillie Gifford China Growth Fund (LON:BGCG), but it trails the other two, with a still respectable 12 month return of 54%. There is no gearing being used on this investment trust, which is significant. It is a smaller, leaner fund, with £214m AuM.
Vietnam and India
Outside China we still like the prospects for Vietnam in 2021. Not as big a market, it is still growing and seems to have emerged almost completely unscathed from the pandemic. Vietnam is cheaper for manufacturing than China, and may steer clear of some of the political problems China may experience in 2021 in its ongoing relations with the US and other countries in the region. Like China, Vietnam should benefit from the signature of the Regional Comprehensive Economic Partnership (RCEP), which was inked last month.
VinaCapital’s Vietnam Opportunity (LON:VOF) investment trust has done well this year, posting 18.4% over 12 months to the end of November, and up +164% over five years. It is currently trading at a discount of 13.2% but has no gearing. AuM at the end of November was £752m.
Special mention has to go to India, which has a large and growing economy, but has been more hampered by the pandemic than China or Vietnam. India has more storm clouds to face in 2021, but when it comes back, it will come back with a vengeance. We like the Ashoka India Equity (LON:AIE) investment trust, which has posted as 15% gain in the last 12 months. The trust has made back all the pandemic-induced losses from March and is trading at all time highs (it was launched in July 2018). It is managed by White Oak Capital Management, a Mumbai-based fund manager with over £1.7bn in AuM.