Morningstar picks 4 Asia equity funds for AI exposure

Morningstar manager research analysts have highlighted four Asian equity funds for investors considering exposure to artificial intelligence (AI). Funds from Wellington Management, Allianz GI and Barings are among the equity funds highlighted by Morningstar manager research analysts in Asia in a recent report. Although income-generating strategies are a perennial favourite among Asian investors, of which the report highlighted two, Asia offers a wide range of exposure to technology and artificial intelligence-related equities. As such, analysts at Morningstar highlighted four tech or focused strategies given the region’s companies’ role as the “picks and shovels” providers in the buildout of AI. Wellington Asia Technology This fund leverages research from the firm’s “impressive” technology sector global industry analyst team, according to Hunter Beaudoin, analyst, manager research at Morningstar. The strategy is managed by Yash Patodia, who assumed sole leadership of the $1.1bn fund in January 2023, although he has been a co-manager since October 2020. It invests predominantly in Asian companies where technology is integral to their success, giving investors a broad exposure to the theme, according to Beaudoin. “The fund’s bottom-up approach targets the next generation of market leaders, defined as companies with strong products, large addressable markets, and management teams with sensible strategies that invest and execute effectively,” he said. “This focus is sound in principle, though execution is heavily reliant on manager discretion, raising concerns about key-person risk and repeatability.” Allianz China Future Technologies This fund invests in companies with high and/or growing research and development levels in both onshore and offshore China equity markets. It offers a strong thematic tilt toward technological innovation, according to Claire Liang, Morningstar principal. It is managed by Stephen Chow and Kevin You, who focus on companies with structural growth potential benefiting from policy support, visionary management, and reasonable valuations. Liang said: “Innovation impact is a key, with a preference for companies exhibiting R&D intensity above 5% of revenue, or rising R&D spending.” “This has led to a structural bias toward technology and industrials, which combined have averaged over 50% of the portfolio since inception, compared with the prospectus benchmark MSCI China All Share’s 20%.” Barings Korea Trust This strategy invests in Korean equities using a bottom-up analysis and a growth-at-a-reasonable-price investment style, with a 3% gross outperformance target against the MSCI Korea Index over a blended one- and three-year horizon. The fund is managed by Singapore-based Eunice Hong, supported by co-manager Julie Lee. SooHai Lim is also a named manager but takes more a back seat, said Beaudoin. “Hong prioritizes high earnings growth potential, and while quality is also considered via franchise, management, and balance-sheet pillars, it may be deprioritised if a company exhibits a robust growth outlook,” he said. “As such, the portfolio’s price metrics have typically been slightly above the prospectus benchmark MSCI Korea Index over Hong’s tenure.” The UCITS fund’s 10% cap on individual stock positions has hurt its relative performance given the outsized weighting and stellar performance of index heavyweights Samsung Electronics and SK Hynix. However, Beaudoin noted the fund’s success in finding other AI hardware enablers such as Samsung Electromechanics and SK Square. iShares Hang Seng Tech ETF This exchange-traded-fund (ETF) tracks the Hang Seng Tech Index, which represents the 30 largest tech and tech-enabled companies listed in Hong Kong. It launched in July 2020. It is a free-float market-capitalisation-adjusted with an 8% cap on individual constituent weightings and, according to Beaudoin, is the lowest-cost option of the six Hong Kong-listed ETFs tracking the index, costing 25 basis points versus an average of 72 basis points among the rest. He said: “By design, the index represents a narrow subset of the global opportunity set available to the ETF ’s category peers, and typically all constituents are Chinese companies.” It is managed by iShares’ Asia-Pacific ex-Japan team, backed by what Beaudoin describes as “comprehensive firmwide resources and sophisticated infrastructure”. “Tracking performance since the ETF’s launch has been tight, with an annualised tracking difference roughly in line with its total expense ratio and an annualized tracking error of 7 basis points from October 2020 through May 2026,” he said.