BlackRock is looking to increase its weighting in healthcare firms in the United States and Europe that have exposure to the Asian market, as a safer way to invest in the Asian growth story, said a star fund manager at the world's biggest asset manager.
Even though Asian equities were trading at low valuations, they were still not attractive enough to warrant direct investments, Dan Chamby, managing director at BlackRock and portfolio manager of the BlackRock Global Allocation Fund, said.
Some high-beta Asian names were appealing, such as Malaysian hospital operator IHH Healthcare, one of Asia's biggest, and China's state-owned drug distributor Sinopharm, said Chamby. But rising labour costs and vague corporate governance are key hurdles keeping the fund out of many Asian equities.
Beta is a measure of a stock's volatility in relation to the market, and a high-beta stock is one that moves by bigger margins than movements in the overall market.
"Wages are rising and this is one of the reasons we are probably going to prefer to exploit growth in the emerging world through more developed market equities," Chamby said.
The BlackRock Global Allocation Fund had assets under management of US$53.7 billion as of September 30, and has seen the weighting of its Asia-Pacific ex-Japan assets fall to 6 per cent in the third quarter from 7 per cent a quarter earlier.
"Valuation [in Asia] is attractive, but not as attractive as we find in other parts of the world, particularly like Germany," said Chamby.
The fund favoured German firms that focused on niche products that sold well in Asia and firms like Mead Johnson, the US infant formula maker, more than half of whose revenue came from emerging market, he said.
The fund returned 4.84 per cent for the third quarter of 2012, lower than its reference benchmark return of 4.95 per cent. The MSCI Asia ex-Japan Index was trading at a price-earnings ratio of 12.69, compared with 13.92 for the S&P Index as of last Friday.
"Clearly, the growth is [in Asia] and this is one of the themes we are trying to exploit in our portfolio," said Chamby. "Asia's middle class is rising and will demand greater healthcare spending."
The fund was looking particularly closely at large-cap pharmaceutical firms around the world that provided basic facilities and healthcare services in Asia, he added.
Although it is less bullish in Asian emerging-market equities, Japan is a buy for the fund since its equities are trading as cheaply as they ever have in the past. Export-oriented Japanese firms and domestic energy plays such as Tokyo Gas are on the top of the fund's buy list.