Case study of Maple-Brown Abbott's Asian Dividend Growth Fund

By Penny Pryor
Maple-Brown Abbott

Maple-Brown Abbott recently launched the Asian Dividend Growth Fund, an actively managed fund that invests in listed (and to be listed) securities across Asia with income streams forecast to grow. Maple Brown Abbot head of Asia Pacific Equities, Geoff Bazzan answered some questions for Industry Moves about the product.

What goes into launching a new product?

We identify where clients' needs intersect with our investment expertise. In this case, we know investors are looking at diversifying their sources of income. With nearly 20 years of investing in the Asian region we've seen an opportunity to capitalise on the strong company balance sheets and design a fund which takes advantage of the sustainable and growing income streams.

How did you research market opportunities and overcome challenges?

For the past few years we have observed an increased focus by management teams in Asia to optimise returns to shareholders, with dividends playing a significant role. There are many companies across the region with the financial means to meaningfully improve their returns to shareholders with more pro-active capital management.

With this in mind, we set out to identify a universe of stocks that met the strict criteria of having both the ability and intention to maintain and grow dividends.

Given there are some 4,500 listed securities across Asia with a market capitalisation above US$1billion potentially eligible for inclusion in the fund, we did significant work to develop a robust proprietary quantitative screening methodology. Based on the outputs of the screening methodology, we have implemented a systematic set of quantitative filters designed to clarify prospective opportunities based on the ability and intention framework mentioned.

Back testing and scenario analysis were also undertaken to refine the relevant criteria used to identify prospective stock candidates suitable for additional qualitative analysis before being included in the portfolio.

What is unique about your offering?

The fund aims to deliver an attractive total return, after fees, over a five-year period whilst maintaining a dividend yield in excess of the MSCI All Countries Asia excluding Japan Net Index (AUD). It is benchmark unaware and comprises a high conviction portfolio of typically between 25-40 securities.

We believe our focus on companies with both the ability and intention to offer sustainable and growing income differentiates the fund from other high yield equity strategies that are purely driven by the absolute dividend yield. Our strict scrutiny with regards to the balance sheet strength and cash flow generation assists in shielding the portfolio from adverse impacts from changes in interest rates.

To arrive at our stock selection, we conduct detailed fundamental qualitative analysis on companies which include detailed financial forecasts, meetings with company management and an assessment of management quality, industry structure and environmental, social and governance (ESG) factors. We also incorporate relevant macro considerations into the forecasts made at an individual stock level.

Our long-term investment horizon enables us to exploit the recurring inefficiency in the market created by short termism, also referred to as time arbitrage. It is our contention that the market often overlooks the role dividends play in the total return derived from equity markets in Asia. In addition, with nearly 20 years' experience in managing Asian equity portfolios across multiple market cycles, we believe our disciplined investment approach is well suited to capturing the growing income thematic across Asia.

Can you explain how you expect the fee structure to work?

The management fees and costs are 0.90 per cent per annum, and there are no performance fees. We believe this is a very competitive fee for a high conviction, benchmark unaware strategy, which is capacity constrained.

What are the biggest challenges currently facing this asset class?

Sentiment towards Asian equities is presently being challenged given regulatory uncertainty within a number of sectors in China, as well as simmering geopolitical tensions. To date the Asian Dividend Growth Fund has seen few direct impacts from the regulatory crackdown in China or the pending default of its largest property company, Evergrande. This is due to the strict criteria (both qualitative and quantitative) applied to portfolio inclusion, which seeks only those companies able to generate free cash flow sufficient to support a sustainable and growing dividend stream.

More recently, mounting concerns regarding the COVID-19 Delta variant impeding the economic and earnings outlook across the region has also dampened the near-term appetite for the asset class. Beyond that, Asia is also exposed to tail risks associated with US Federal Reserve actions to begin tapering asset purchases, which has the potential to cause dollar-linked interest rates to rise, resulting in potential capital outflows from Asian equities. The effects of such tapering are expected to be less significant than in 2013 and in many respects are already duly discounted by the market given the underperformance of Asia versus the rest of the world year to date.

While further near-term volatility cannot be ruled out, we see scope for strong upside across the region on a medium and long-term basis.