Last updated on June 14th, 2018 at 05:36 pm
What is First State Dividend Advantage Fund (FSDA)?
First State Dividend Advantage Fund is a unit trust fund that has a current fund size of $2.25B as at Mar 2018. It feeds into First State Asian Equity Plus Fund which invests in companies with a regular and above average income as well as having the potential for long-term growth. It pays about 3.6% per year as dividend currently.
So What is First State Dividend Advantage Fund (FSDA) Performance Like?
A Strong 10-year performance vs its peers
It earned its reputation due to its long-term record:
1. Ranked 3rd out of 78 on the score for the least “Max Drawdown”. This means your heart will not skip a beat as it is stable, which is good! A possible reason is that the fund has more holdings in consumer staples than most funds. Consumer staples are companies that provide you goods and services for your “daily living” needs. Companies like P&G or Sheng Song.
2. Ranked 4th out of 78 for its “Total Return”. This is definitely good and we will examine why more below
3. Delivered 10.1% p.a. over last 5 years and 7.6% p.a. over last 10 years. This beats CPF-OA interest rates of 2.5% both hands down by a good margin if you can invest for the long term.
Quarterly breakdown of returns (USD)
What we can learn: Even with such a good ranking for the least “Max Drawdown”, it still lost 38.6% in the year of 2008.
Average performance over the last 3 years
Compared to its high ranking based on it’s 10-year returns, it only ranks 52th out of 126 for performance over the last 3 years. This is a very average showing.
So why the stark difference between its strong 10y performance and its average 3y performance?
It is because back in 2014, First State Dividend Advantage Fund had around 23% of its holdings in Indian equities. In that year, Indian equities skyrocketed by >40% as Prime Minister Modi won the election and the Indian economy experienced the “Modi Effect”. Comparatively, HK equities did only 12% in year 2014 (as shown below).
Therefore, the strong 2014 performance allowed FSDA to achieve its superior 10y performance of 10.1% p.a.!
Schroder Asian Growth Fund (SAGF) is NUMBER 1 based on 2017 performance
SAGF’s current fund size at Mar 2018 is $1.34B. As stated on its factsheet, the Schroder Asian Growth Fund will be broadly diversified with no specific industry or sectoral emphasis. It does not favour high dividend companies as compared to FSDA. Personally, I like funds which give the fund managers flexibility to invest and be different to the index.
It’s superior 2017 returns pulled the returns upwards and SAGF is also NUMBER 1 over the 10y period.
What is SAGF focused on?
As illustrated below, this fund has an overweight on IT (33% into IT) and a MASSIVE overweight in consumer discretionary (19.4%). Consumer discretionary are companies that sell cars or luxury items etc. “China Lodging Group” belongs to this sector. Stock prices of such companies do better in a good economy but underperform in a poor economy.
In USD terms, SAGF did >54% in 2017 which is a fantastic return. Almost 20% more than FSDA!
SAGF USD Quarterly based returns
Should you buy Schroder Asian Growth Fund over First State Dividend Advantage Fund?
Broadly saying, anything that appreciates in price more carries more risk of becoming expensive in valuation. Therefore, it is NEVER wise to invest purely based on last year’s results.
This chart shows that from April 17 to Oct 17, an investment in SAGF would have given you extra 10% returns. But an investment in FSDA would have given you an extra 2% return as it is more stable.
My Personal take
My sensing is that the managers of the First State Dividend Advantage Fund (FSDA) seem to have exercise better discipline in their investment approach. IT is a hot sector now but their allocation is at 20.6%, which seems to be much lesser than its peers. Instead, FSDA’s top holding is TSMC which is THE HEAVY WEIGHT of the semiconductor industry. The company pays a dividend yield of about 2.7%pa. If you value dividends and stability, let this fund allocates across companies in Asia Ex-Japan for you.
IT companies like Tencent Holdings & Alibaba (which undoubtedly contributed to SAGF’s strong performance) do not pay handsome dividends now as they are focusing on expanding. If you feel 2018 is a good year for IT sector and equities in general, you should buy SAGF and let this fund allocates aggressively for you.
Both funds are CPF-OA approved and are closely tracked in my investment advisory service.
Still undecided if investing your CPF is necessary for you, read more below: