This has raised hopes that it could be undergoing a turnaround after a prolonged period of underperformance – the MSCI AC Asia Pacific ex Japan index is virtually flat over three years.
Performance of indices over 3yrs
Source: FE Analytics
One of the most important factors for long-term outperformance is the level of fees you pay.
Thanks to the power of compounding a relatively small difference in charges can have a very significant effect on your return over the long run.
For this reason investors looking to get back into the Asia Pacific ex Japan sector or increase their holdings might be looking for the cheapest funds available.
Here we look at the cheapest funds under the new clean share class regime.
The cheapest way to get access to the region is through a passive tracker fund. The cheapest of these is the BlackRock CIF Pacific ex Japan Tracker, which charges just 0.2 per cent.
This fund has done a decent job of tracking the returns of the FTSE Asia Pacific ex Japan index over the past three years, slightly exceeding its returns of 3.74 per cent.
However, purists will point out that a tracking fund shouldn’t strictly speaking outperform an index. We can’t use the tracking error measure to judge the success of the fun, however, as this will be affected by the time zone difference between where the stocks and the fund are traded.
The L&G Pacific Index is another cheap option at just 0.22 per cent. This one tracks the same index with extremely similar results.
Royal London, Vanguard and HSBC all have trackers available in the sector with fees of 0.27, 0.3 and 0.43 per cent respectively.
Among active funds, the cheapest option is the Schroder Institutional Pacific fund which costs just 0.52 per cent per annum, plus platform charges.
The fund is managed by King Fuei Lee, who is Schroders’ lead fund manager for developed Asia Pacific mandates.
The manager also runs Schroder ISF Asian Equity Yield and the well-regarded Schroder ISF Asian Total Return fund with Robin Parbrook.
Schroder Institutional Pacific also has an excellent track record to boast of, with the second-best return of any fund in the sector over a decade – 277.64 per cent. However, the manager took over only in 2007.
The fund is ninth out of 67 over five years and thirteenth out of 78 over three as well.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund is yielding 3 per cent and there are income units available, although yield is not its stated aim.
It has a very high weighting to Australasia, with 62.83 per cent on that continent, largely in banks and miners.
BHP Billiton, Commonwealth Bank of Australia and National Australia Bank are the three largest holdings. The fund has 11.77 per cent in miners in total.
The fund’s high weighting to Australasia may make it not the best option for those seeking exposure to emerging Asia.
The next cheapest fund is significantly more expensive at 0.8 per cent: the £51m Baillie Gifford Pacific fund, which has five FE crowns.
The fund is top quartile over three and five year periods having marginally outperformed the Schroder portfolio. However, the manager, Roderick Snell, only took over last year.
The fund has 27.2 per cent in South Korea, 19.5 per cent in Taiwan and 17.9 per cent in India. China and Hong Kong together make up a further 24 per cent.
The portfolio has a bias towards tech, with 6.5 per cent in Samsung, 5 per cent in Tencent and a further 5 per cent in Taiwan Semiconductor Manufacturing Company.
Also very cheap is the £217m AXA Rosenberg Asia Pacific ex Japan fund, available with ongoing charges of 0.82 per cent.
The fund has a less successful track record, though, with second-quartile returns over five years, third quartile over three and fourth over one.
Source: FE Analytics
Some of the cheapest funds in the sector are the equity income funds. Newton Asian Income has ongoing charges of 0.82 per cent and L&G Asian Income 0.84 per cent while Henderson Asian Dividend Income 0.9 per cent.
These funds became extremely popular through the years of crisis but have had a torrid year, all featuring in the fourth or third quartile over 12 months.
However over the longer term their track record still looks good, with the Newton fund second over three years, the L&G fund fourth and Henderson fund fourteenth.
