Cash in the £4.15 billion fund currently stands at a minimum level of 20 basis points after the manager opted to put cash to work from the autumn onwards. At this point, he felt the worst was over in terms of the sell-off that followed the Federal Reserve’s tapering announcement in May.
‘We did quite a lot of buying around autumn of last year. The cash level in the fund is very low now. It is basically at the minimum possible level because I think the value of the stocks we hold is very good,’ Pidcock said.
Adding to real estate
Real estate investment trusts represent one area he has been adding to since the summer. Holdings here include Parkway Life, Maple Tree Logistics trust, which owns warehouses across Asia, alongside Australian office property owner Dexus. The latter trust has a 6% yield and Pidcock says it offers dividend growth potential.
He has also bought into Orora, a business that spun out of Australian packaging company Amcor, as well as insurance company Suncorp.
The manager remains overweight in the more developed markets in the region, such as Australia and New Zealand.
‘One other country we like very much is the Philippines,’ Pidcock added. ‘Despite the typhoon [of November 2012], we think it is one of best economies in the region and will have the fastest growth rates in 20 to 30 years. It is coming from a low base of GDP per capita, but demographics are very good and companies are much better managed.’
He acknowledges the portfolio has suffered as a result of the emerging market currency sell-off, as he does not hedge as a policy. Sterling strength in the second half of last year brought the fund’s fourth quarter dividend down, which ultimately lowered the full-year payout.
However, he says hedging is not something he will look to employ and he expects this currency weakness to ultimately reverse. Pidcock also runs the Newton Emerging Income fund.
‘If we have a strong view that a currency is going to weaken we avoid equities in the market or favour exporters. But if we feel a currency is going to weaken temporarily, which is our view with the Australian dollar, we just ride it out,’ he said.
‘Most people were surprised by sterling’s strength during the second half of last year. Our view is it could fall back any time. There could be any number of reasons for sterling strength and we have got to the point where a lot of currencies in Asia or Australia look weak now, so it might well be that they bounce back.
‘Over time we take the view that it will all come out in the wash and if a currency weakens you can see better earnings and dividend growth.’
He remains positive on the Australian dollar, which he views as a strong currency given the country’s low national debt-to-GDP and more normalised interest rate policy.
After a challenging six months for Asia and emerging markets, Pidcock has a positive outlook. He argues that since the shake-out he is seeing a lot more valuation opportunities now the hot money has departed.
‘I feel more optimistic in absolute terms as well. I feel I don’t need to fear underperforming against Asian markets and for unitholders I think the fund stands to do much better than developed markets from these levels,’ he said.
He anticipates single-digit dividend growth in Asia, in line with earning growth. However, global equities could have a tougher time than some anticipate.
‘I don’t think it will be a stellar year for equities on a global basis. In 2014 I felt US equities could be down because valuations were so stretched at the end of the year. January has been a weak month so it might be that we end the year where we ended in January,’ he said. ‘That might be it for the fall. I feel there is a much better relative outlook for Asia and Asian income funds.’
He remains positive on top holdings casino operator Sands China, which grew its ordinary dividend by 29% year-on-year and announced a special dividend, and Telecom Telstra.
Over the three years to 13 February, Pidcock has posted a 22.8% return compared to a 2.2% Asia ex Japan peer group average. The fund has a historic yield of 5%.