Richard Troue: 'Full marks to First State Stewart's Asian team'

It has stuck to a tried-and-tested investment approach that has contributed to considerable success

First State Stewart's Asian and emerging markets team has always been impressive in this regard. It is their willingness to take a genuinely long-term view and stick to a tried-and-tested investment approach that has contributed to considerable success across a range of funds.

One such fund is the Scottish Oriental Smaller Companies investment trust, which invests in the shares of smaller businesses across the Asia Pacific region, excluding Japan and Australasia.

Given the team's emphasis on backing high-quality companies and not paying too high a price for them, I tend to expect the trust to perform relatively well during tougher times for stock markets. But on this occasion that has not been the case. It has been a difficult year for Asian stock markets as investors have fretted over China's prospects, and the trust's share price has fallen to a greater extent than the benchmark MSCI AC Asia ex Japan index.

The team, led by Wee-Li Hee, usually looks past this kind of short-term volatility and concentrates on the prospects for individual companies, rather than investing based on the economic or stock market outlook. The problem now, however, is that it has become hard to buy into these companies at what the trust regards as a reasonable price. Even after the summer's stock market falls, the team do not believe valuations are attractive.

Ms Hee has a shopping list of companies she would like to invest in, but cannot justify it at current levels. Her short to medium-term outlook, therefore, remains subdued.

Despite the lack of opportunities, the managers believe they have a portfolio of high-quality companies that will deliver over the long term. Their research has uncovered a lot of opportunities in Singapore and India, particularly among consumer-focused businesses where they have found strong, well-managed franchises.

One of their largest investments, for example, is in Marico, a consumer goods company based in India. Its key products are the Parachute and Nihar brands of coconut oil, with a combined market share of 57 per cent, and Saffola premium refined edible oil, with a 58 per cent share.

They have also found opportunities among healthcare companies, including Singapore's Raffles Medical Group, a private healthcare providers with around 100 clinics and a private hospital. The group sees around 2 million patients annually and benefits from a trusted brand – vital in healthcare.

The wider First State Stewart team was restructured recently, splitting to form two new investment divisions: First State Stewart Asia (which manages the trust) and Stewart Investors. The business had grown significantly and the split will allow both teams to operate as smaller, flexible investment groups, which they feel is critical to their success in managing the portfolios.

The split means Angus Tulloch (of Stewart Investors) has stepped back after many years' involvement with the trust. Losing the direct involvement of such an experienced investor is never ideal, but the trust's approach is not changing and the people at the helm remain experienced and well resourced.

Taking a long-term "buy and hold" approach means there will inevitably be times when things don't go your way, but I retain faith in the team to deliver over the long term and maintain their excellent track record.

The difficult spell for Asian markets might not be over yet, but I view this as a trust worth keeping an eye on for exposure to the growth potential of smaller companies across the Asia Pacific region.

Richard Troue is head of investment analysis at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit hl.co.uk