But while investors were focused on these concerns, the Asia Pacific region has had a terrific 12 months.
According to FE Analytics the MSCI Asia Pacific ex Japan index has soared 20.74 per cent over one year, with the past month alone providing a 7.39 per cent uplift.
Over one year developed markets are also in positive territory overall with the S&P 500 gaining a whopping 27.8 per cent. But the UK, Europe and Japan have been significantly slower to make ground.
Performance of indices over 1yr
Source: FE Analytics
Asia Pacific has also been the standout investment story over the longer term with the index 50 percentage points higher than the S&P and almost double the UK and Europe over 10 years.
Performance of indices over 10yrs
Source: FE Analytics
Two fund groups have dominated the region over the last 10 years: Aberdeen and First State, but due to their performance and popularity with investors, a number of their open-ended funds have soft-closed due to strong inflows.
However, the last six months have seen diverging fortunes for the two titans with the £7.8bn First State Asia Pacific Leaders benefitting from the IA Asia Pacific ex Japan sector’s highest inflows – £438m – while the biggest outflows have come from the £2bn Aberdeen Asia Pacific Equity fund, which has shed £200m.
Both fund are headed by strong managers. FE Alpha Manager Angus Tulloch has led First State Asia Pacific Leaders since 2003; Aberdeen Asia Pacific Equity is looked after by the fund house’s Asian equities team, which is helmed by fellow Alpha Manager Hugh Young.
The First State offering has also eclipsed its rival it in terms of total return. Over one year the First State Asia Pacific Leaders fund is up 33.67 per cent compared to Aberdeen Asia Pacific Equity’s 18.13 per cent gain.
This trend is also apparent over three, five and 10 years with First State Asia Pacific Leaders streets ahead of its rival from the point of view of total return.
Performance of funds over 10yrs
Source: FE Analytics
It is also interesting to look at the two fund’s Sharpe ratio. This calculates a fund's return relative to a notional risk-free investment, in this case cash, with the difference in returns then divided by the fund's volatility.
This highlights funds’ historical risk-adjusted returns. The First State fund trounces the Aberdeen fund over one, three, five and 10 years for Sharpe ratio. First State also scores better for volatility, although it must be noted that the Aberdeen fund is close behind in all periods.
The First State team has been overweight India over the past 18 months and underweight China while Aberdeen has done the reverse – although the Aberdeen fund does now have a sizable chunk in Indian equities.
As the graph shows it has paid to be in India over China – broadly speaking – over the past year thanks to a flood of positive sentiment into its stock markets following the election of the reformist Narendra Modi to the country’s premiership.
Modi was elected on a pro-open market ticket, amongst other pledges, that investors are betting will reverse a period of stagnation for Indian stock market performance.
Amaya Assan, senior investment research analyst at Square Mile, says the management teams behind these funds seek to identify well-run, high quality companies that they can invest in for the long term. This approach has helped both to significantly outperform their rivals.
“Upon closer perusal, stock selection in India has been generally beneficial for the two funds, and both are overweight a market that has been strong this year thus far. Although the Aberdeen Asia Pacific Equity fund has seen some stock selection issues in Australia detracting from performance in 2014, over a 10-year horizon both funds have provided investors with positive capital accumulation outcomes,” she said.
“This only serves to highlight the importance of taking a long-term view. In general, equity funds are vulnerable to changes in sentiment and can experience strong gains as well as significant losses, particularly over shorter time periods. Good fund analysis should help to moderate some of the risks investors can face when choosing actively managed funds.”
Assan says heading into 2015, Indian market should be set for further growth with Modi’s mandate for change strengthening.
First State Asia Pacific Leaders has a clean ongoing charges figure of 0.89 per cent compared to Aberdeen Asia Pacific Equity’s 1.22 per cent.
