The Asian Total Return Investment Company is an exciting opportunity to invest in an investment trust that combines excellent stock-picking in the Asia Pacific region with a wary eye on downside limitation measures.

Up until March this year, this investment trust was called the Henderson Asian Growth Trust but, following an extraordinary general meeting (EGM) on 15th March, management switched to Schroder, where it is now run by Robin Parbrook and Lee King Fuei.

At the same time, the name was changed to the Asian Total Return Investment Company (ticker: ATR).

Few investors will have heard of these managers, but they currently run one of the most successful Asia Pacific equities in Europe, the Schroder ISA Asian Total Return fund.

Unfortunately, this highly successful Luxembourg-domiciled SICAV closed to new investors after reaching $1bn in 2010. The good news is that the investment trust mandate has been changed to allow the managers to run the trust along the same lines as the closed SICAV, opening the way for new investors to gain access to this highly talented managers.

Both managers are based in Asia, embedded in Schroder’s strong investment team there, which includes 10 fund managers and 28 analysts. The sizeable team carries out extensive on-the-ground research, carefully analysing a company’s underlying business model, operating environment and financial statements. The analysts combine this qualitative view with detailed quantitative financial modeling and proprietary screening technology, to provide a target ‘fair price’ and a stock rating from 1 to 4. The managers then use this information to build a portfolio of 50-70 stocks with a focus on the absolute upside to fair value to create their long-only equity portfolio.

On top of this stock portfolio, the managers apply a top-down view that incorporates a 12-month country outlook for each country in the region as well as a tactical view of market conditions on a three-to-six month view. Where the managers have negative views they will use hedging techniques to mitigate some of the downside risks, such as using country index futures and protective puts against the portfolio. Through these mechanisms, the managers are able to focus on targeting a total return to investors, though such downside protection will only be used where they are deemed cost-effective and are ultimately dependent on the managers’ judgment.

Investors should be aware that during periods of high volatility, the cost of this downside protection may be prohibitive, and so such mechanisms within the investment trust should not be relied upon.

Thanks to a robust investment process that focusses on solid underlying business models, the portfolio tends not to hold many miners, oil & gas companies or risky banking assets. Instead, the portfolio has significant positions in industrial and consumer names. The types of stocks the managers like include the likes of Giant, a well-known Taiwanese company that is a major worldwide manufacturer on bicycles and bicycle accessories, and Techtonic industries, a Hong Kong listed company that owns many well-known brands in power tools and outdoor equipment such as Hoover, Vax and AEG.

The managers have an exceptionally strong record in delivering a high level of performance to investors through their open-ended vehicle. There will be a few differences between the investment trust and open-ended vehicle; notably the managers will be better able to exploit opportunities in mid- and small-caps and will also be able to use more gearing. Overall, we have every faith that they will be able to bring their expertise to this investment trust.

Ben Seager-Scott is senior research analyst at Bestinvest