Asia Pacific Equity Strategy 4Q 2018


Key Takeaways

  • After returning 36.98% in 2017, the Asia Pacific ex-Japan region came under pressure last year, with volatility rising each quarter. Trade tensions, political uncertainty, tightening monetary policy and worryingly slower Chinese economic growth weighed on the region. Our Asia Pacific Equity Strategy delivered negative returns but outperformed the MSCI AC Asia Pacific ex-Japan Index for the fourth quarter and the full year 2018.
  • Our relative outperformance for the quarter was broad-based. The financials sector was the most significant driver of our relative returns, helped by our core Indian financial holdings. Our holdings in the information technology sector also drove relative performance. A combination of factors resulted in a short-term correction in IT, which we think was warranted, and our lack of exposure to certain companies worked in our favor. The strategy had a slight negative attribution from our underweight to the real estate and utilities sectors.
  • Growth expectations rose through 2017 but then proceeded to fall through 2018. While expectations were, in retrospect, too optimistic in 2017, they are now more likely in-line with reality. Considering that valuations are at just about 12x this year’s earnings, the Asia ex-Japan markets are, ceteris paribus, in a position to do well in 2019.
  • Improving stability, a continuing trend toward reformist government, moderating growth in leverage, lower energy costs and reasonable valuations set the markets up for the potential of a decent 2019 for Asia. We believe we own a very compelling group of companies with attractive growth prospects, at reasonable valuations. Adding a measure of solid downside protection, we believe the underlying businesses are strong, enduring franchises with prudent management teams.

Trailing Returns: Asia Pacific Equity Composite(As of 12.31.2018)

Calendar Year Returns

Since October 2009, results of the composite are compared to the MSCI All Country Asia Pacific ex Japan Index (Total Return Net Dividends). Prior to October 2009, results of the composite were compared to the MSCI All Country Far East ex Japan Index (Total Return Net Dividends).
Strategy name changed from Far East Equity to Asia Pacific Equity effective August 10, 2018.

Source: NorthernTrust
All results portrayed are expressed in U.S. dollars.
Past performance is not necessarily indicative of future results. For full disclosure and for further information regarding comparison to an index, see the Disclaimer and Performance Disclosure.

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