Building Resilience Through Quality: Investing in FSSA Asia Pacific Equity Fund

• Within Asia ex-Japan economies, we observe growing policy tailwinds and attractive growth opportunities in China and South Korea. We remain positive on Taiwan, maintain a neutral view on India, and see the region as a whole offering solid growth prospects.

• The FSSA Asia Pacific Equity Fund emphasises investing in quality companies with disciplined valuation, enabling the fund to navigate various market cycles effectively.

• The portfolio favours businesses aligned with structural themes such as dominant consumer franchises, digital transformation and automation, as well as rising healthcare demand.

• The fund’s strong risk management focus has contributed to its outperformance during volatile markets and downturns, supporting consistent returns over 3- to 5-year investment horizons.

• We believe a quality-focused investment approach is key to filtering short-term market noise while capturing long-term growth driven by strong company fundamentals.

Asia equities delivered a strong performance in 1H25, with all major markets posting positive returns. Investor capital rotated out of the US in search of diversification, partly in response to renewed tariff policies under President Trump. At the same time, structural growth themes across key Asian ex Japan (AxJ) economies have become more compelling, driving increased investor positioning in the region.

Moving forward, we believe the outlook for AxJ remains broadly positive, and the region will continue to be a key area to watch. In this context, we highlight the FSSA Asia Pacific Equity Fund as a compelling option for investors seeking to capture these growing opportunities.

The investment outlook for key AxJ markets remains broadly positive

We have turned more constructive on China, the largest constituent of the Asian equity universe, as the government has implemented targeted pro-growth measures focused on revitalising the private sector. Looking ahead, we see opportunities emerging in technology-related sectors. These are expected to benefit from the “Guo Bu” trade-in program, which aims to stimulate domestic consumption and accelerate advancements in AI and digital infrastructure.

While we have long viewed South Korea as a “New Asia Tiger,” market sentiment was weighed down by political uncertainty since late last year. However, with the inauguration of President Lee Jae-myung, policy direction has become clearer, and support is returning. We expect renewed fiscal and industrial backing to support South Korea’s recovery, particularly in high-bandwidth memory chip production, a sector with significant global demand potential.

Our stance on India remains neutral, but valuations have turned more attractive following recent market consolidation. Taiwan continues to offer compelling investment opportunities, underpinned by its global leadership in semiconductor manufacturing.

From a long-term perspective, the structural growth story across Asia remains intact. Tariffs, however, remain a notable headwind in the near term. The latest round of US tariff adjustments, which include reductions for key Asian economies such as South Korea, Taiwan, and parts of ASEAN, will likely introduce some near-term volatility as companies and investors adjust to the new regime following a three-month implementation pause.

Nonetheless, we believe staying invested in quality companies with strong fundamentals remains the best way to navigate volatility. Such businesses are well-positioned to weather policy shifts and deliver sustained long-term outperformance.

Related article:  Asia and EM Stocks Have Room to Run Despite Tariffs Overhang

Upgrade China to 3.0 Stars 'Attractive' Rating Amid Private Sector Resurgence

Taiwan Stock Market 2H25 Outlook: Can Taiwanese Stocks Break Through Tariff & FX Barriers?

Korean Stocks Soared—Are They Still a Hot Buy?

FSSA APAC Equity Fund: A Quality-Driven Strategy for Sustainable Growth

As a long-term investor with a disciplined buy-and-hold philosophy, FSSA’s core strategy centres on identifying high-quality companies capable of delivering sustainable and predictable growth across market cycles. The FSSA Asia Pacific Equity Fund employs a bottom-up stock selection process, grounded in fundamental research and direct engagement with company management teams. This allows the portfolio manager to assess the quality of leadership and the credibility of long-term business strategies.

Valuation discipline is a key pillar of the investment process. The team only invests in companies trading at sensible valuations, ensuring a sufficient margin of safety relative to their assessed fair value. Holdings are subject to regular internal reviews, where company progress is evaluated against initial expectations to ensure the investment thesis remains intact.

This quality focused approach has resulted in a high-conviction, actively managed portfolio of just 49 holdings as of 30 June 2025, with a low turnover rate of under 40%. The fund maintains a differentiated profile from its benchmark, the MSCI Asia Pacific ex-Japan Index. Among its top ten holdings, only four overlap with the benchmark, and even these show significant weighting differences.

The fund holds overweight positions in Tencent, HDFC Bank, and Samsung Electronics - a reflection of their strong fundamentals, long-term growth potential, and attractive valuations. Conversely, it maintains a 2% underweight in Taiwan Semiconductor Manufacturing Company (TSMC).  

Table 1: The fund’s top ten holdings differ significantly from those of the benchmark

Holdings of the Fund	Portfolio Weight (%)	Holdings of the MSCI APAC ex Japan Index	Index Weight (%)
Tencent Holdings	9.0%	Taiwan Semiconductor MFG	9.9%
Taiwan Semiconductor MFG	7.9%	Tencent Holdings	4.6%
HDFC Bank	6.1%	Alibaba	2.7%
ICICI BanK	5.2%	Samsung Electronics	2.32%
Oversea-Chinese Banking Corporation	3.9%	Commonwealth Bank of Australia	2.24%
AIA Group	3.8%	HDFC Bank	1.46%
Netease	3.5%	Xiaomi Corp	1.44%
PT Bank Central Asia Tbk	3.1%	BHP Group	1.35%
Midea Group	2.9%	SK Hynix	1.30%
Samsung Electronics	2.9%	Reliance Industries	1.2%
Total	48.3%		28.4%
Source: FSSA Investment Managers, MSCI, iFAST compilations. Data as of 30 June 2025.

Strategic Themes Driving Portfolio Allocation

While the portfolio manager adopts a bottom-up stock selection process and does not express any top-down market or sector preferences, investment ideas often align with several long-term structural themes. These themes naturally guide the portfolio toward certain markets and sectors where more compelling opportunities exist.

Two prominent themes across the Asia Pacific region are dominant consumer franchises and high-quality financials. These have led to higher allocations in Financials (30.6%) and Consumer Discretionary (15.1%), the fund’s top two sector exposures as of 30 June 2025 (Figure 2). The team believes these sectors are well-supported by favourable demographics, rising income levels, and ongoing urbanisation trends. As a result, markets such as China (30.3%) and India (24.7%) hold top positions (Figure 1). Examples of holdings that reflect these themes include HDFC Bank and ICICI Bank in India, and Midea Group in China.

Another key trend shaping the portfolio is Asia’s technology leadership in an increasingly digital and connected world. The fund manager sees long-term growth potential in technology and automation, particularly in Taiwan’s semiconductor foundries and equipment manufacturers, as well as China’s leading internet platforms. This conviction is reflected in meaningful allocations to Information Technology (20.9%) and Communication Services (12.4%). Key holdings include TSMC, Tencent, and NetEase.

The fund also sees healthcare as an underrepresented opportunity in Asia Pacific relative to global benchmarks. As regional economies mature and income levels rise, both public healthcare investment and personal spending on wellness are expected to grow. The portfolio maintains a modest overweight of 1.6% in the Healthcare sector, reflecting this emerging theme.

Figure 1: The fund is overweight in China and India

Figure 2: The fund managers focus on quality financials, infotech, and leading consumer brands

Focused on Managing Risk While Delivering Returns

The fund manager firmly believes that investing in companies led by high-quality management teams enables those businesses to better withstand market shocks and recover more swiftly once market order re-established. This investment philosophy has been tested and proven through volatile and challenging market conditions. Over the past five years, the fund’s maximum drawdown was -19.6%, significantly lower than the benchmark’s -35.4% and the peer group’s -37.1% (Figure 3).  

Figure 3: The fund’s 5-year maximum drawdown is significantly lower than both peers and the benchmark

This focus on downside risk management has also translated into performance resilience during market downturns. In 2021, while the benchmark recorded a negative return of -1.0% and peers were flat, the fund delivered a positive return of 2.6%. In 2022, the fund limited losses to -8.6%, outperforming both the benchmark and peers (Figure 4).

Year-to-date and over the past year, the fund’s performance lagged (Figure 5), mainly due to its underweight position in South Korea and muted growth in India. Although the fund maintains overweight exposure to semiconductor leaders like Samsung Electronics, its overall limited allocation of 4.5% to South Korea contributed to the relative underperformance. The manager acknowledges that the fund’s deliberate focus on downside risk management can lead to underperformance during liquidity-driven, momentum-led rallies, as seen in 1H25 when sentiment in South Korean equities surged sharply.

Nonetheless, over three and five years, the fund’s quality-driven, defensive approach has consistently outperformed peers by 0.8% and 1.3% in annualised returns, respectively, despite trailing the benchmark.

Figure 4: The fund demonstrated resilience during the market downturns of 2021 and 2022

Figure 5: The fund lagged YTD and over one year but delivered solid longer-term performance

Final Thoughts: Stay Invested in Asia Through Quality

In turbulent market environments, we believe it is more important than ever to remain invested in fundamentally strong companies that offer compelling growth potential over a longer time horizon, rather than focusing on short-term gains or losses. Markets often swing on headlines and noise - factors that remain substantial amid ongoing tariff negotiations, geopolitical tensions, monetary policy uncertainties, and shifting growth outlooks. With so much noise to filter, a disciplined focus on fundamentals is key to navigating these storms.

The FSSA Asia Pacific Equity Fund has demonstrated a proven track record of delivering resilient returns by adhering to a quality-driven, long-term investment approach. While the fund has experienced near-term periods of underperformance, its buy-and-hold strategy has consistently generated strong returns over extended time frames. For investors seeking to diversify their portfolios and increase exposure to Asia, this fund represents a compelling addition.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report holds a NIL position in the abovementioned securities.