Unlike so many fund managers, Tulloch and Asante both realise the limitations of their asset class/region and, even more importantly, are open with their investors about them.
Rather than the "A-Pac manager says A-Pac is brilliant" story one tends to see from other managers in the region, joint managing partner of First State Stewart (the firm’s Asia Pacific and Global Emerging Markets team), Tulloch, is positively bearish on Asia-Pacific equities.
"For all the optimism, we remain concerned that markets are still held up by accommodative monetary policy (printing money in the west) and that the eventual removal of this stimulus will bring a reality-check in Asia and elsewhere," he says.
He cites political concerns in both India and China as further reasons to be wary. In India he says the governing party has struggled in recent state elections and does not have the strong fiscal position required to "throw money at the electorate" as it usually would in this scenario.
Meanwhile, the dismissal of Bo Xilai as Chongqing Communist Party secretary is a reminder that Chinese political stability should not be taken for granted, according to Tulloch.
Another difference in Tulloch’s approach is that he admits the fortunes of these economies are still linked to those of developed countries in the West: "With the slowdown resulting from debt levels in the West countered by inflationary government policies, the outlook for the region still depends largely on outside influences.
"With such opposing forces, preservation of capital should remain the focus and hence our portfolio remains very defensively positioned focusing on companies with pricing power, strong sustainable cash flows and growing dividend yields."
Ultimately he thinks the widely held belief the Chinese government is in control and can engineer a pain-free slowdown is open to question, but longer-term he remains positive and focused on the theme of domestic consumption, which he thinks has bright prospects.
Asante’s view
Head of global emerging market equities, Asante, also sees many risks on the horizon and so has remained cautious: "A visit to Asia has made us concerned that private banking in the region could be the next banana skin for global banks looking for new sources of revenue. The drive to increase income from fees could potentially lead to a mis-selling of products."
Like Tulloch, he questions the Chinese government’s handle on the economic slowdown, but he goes as far as to doubt the consumer story as well.
"A continuation of the Chinese investment and capital expenditure growth is questionable even if Chinese consumers continue to be better off in the medium-term."
Aside from China, Asante is wary of commodity producing countries such as Brazil and South Africa because he feels their governments are likely to base spending plans on the expectation of high commodity prices.
Government involvement and policy has been of particular concern in Brazil and Argentina, Asante explains, while in a rare bullish moment he says the team have found some well-run companies trading at acceptable valuation levels in Chile.
"Indeed, the Chilean government has perhaps the best record of any [Latin America countries] in honouring long-term agreements with the private sector."
Slow and steady wins the race
Tulloch’s £5.8bn First State Asia Pacific Leaders Fund has lagged the benchmark over three and six months, as the market indices in the region rallied.
But this befits his defensive stance. In the three months to 31 March he posted returns of 7.8%, compared to benchmark returns of 9.4%. Over six months to the same date he returned 10.9% versus 14.4% from the benchmark.
But over one year (bearing in mind the rollercoaster that was equity markets in 2011) Tulloch has returned 2.4% against a benchmark loss of 6.6%. Over three and five years the fund is second and first quartile respectively.
Meanwhile Asante’s £2.4bn First State GEM Leaders Fund has also underperformed the market over three and six months, but has top quartile performance over one three and five years.
In the three months to 31 March he was up 7% against benchmark returns of 11% and in the six months to 31 March he returned 13.5% versus 16.2% from the benchmark.
So while both managers failed to take full advantage of the rally seen in their respective regions in Q4 2011 and Q1 2012, their bearish outlooks explain why.
And as uncertainty starts to ripple through world markets once more, the impressive performances in the first quarter looks likely to be unravelled.
During such times, give me sceptical and honest bears over rally-chasing bulls any day.
