According to FE Analytics, it has been the sector’s best performing portfolio over that time with returns of 59.50 per cent due to the manager – Jonathan Pines – focusing on value, an approach which is completely different to nearly every other fund in the sector.
To illustrate its outperformance, the MSCI Asia Pacific ex Japan index has returned 22.16 per cent over that time and many experts expect those market-beating gains to continue as a focus on quality growth, which has been the most successful style in the Asian market over the last decade or so, is leading managers to very overvalued companies.
Performance of fund versus sector and index since Nov 2012
Source: FE Analytics
Due to Pines’ differing approach and strong returns, the portfolio’s AUM has surged from around $480m this time last year to its current size of $1.5bn.
As a result of those inflows and to protect current unitholders’ interests, the group will “soft-close” the fund in May. While Hermes says the maximum capacity is $2.5bn, it has acted early to give the manager enough flexibility.
Simon Evan-Cook, fund manager at Premier, uses the fund and says he will continue to hold it as those with existing units will be able to invest up to £250,000. However, he says it is a blow for investors who had the fund on their buy list as there aren’t many other like-for-like replacements in the Asian equity space.
“It’s tricky because there isn’t much out there that has a similar style, not that are still open anyway,” Evan-Cook said. “Most have a different style as Pines purely focuses on value and not quality growth and I haven’t come across any other funds like it.”
Clearly, new investors can still buy units in Hermes Asia ex Japan before May 11, but for those looking for possible alternatives we look at three Asia funds which have a degree of value-bias for investors to consider.
BlackRock Global Funds Asian Growth Leaders
As well as using the Hermes fund and Prusik Asian Equity Income, Evan-Cook holds Andrew Swan’s nimble $110m BlackRock Global Funds Asian Growth Leaders fund.
Though the manager says it is no means a like-for-like alternative to Hermes Asia ex Japan as, as its name suggests, Swan’s BlackRock fund has a growth-bias – Evan-Cook says it is an interesting offering for investors looking for Asia Pacific ex Japan exposure.
“He definitely takes valuation very much into account and is very wary of finding tomorrow’s winners rather just holding today’s ones,” Evan-Cook said.
BlackRock Global Funds Asian Growth Leaders was launched in October 2012 and while it sits in the offshore universe, it is available to UK investors via certain platforms.
According to FE Analytics, it has returned 45.9 per cent over that time beating its benchmark – the MSCI AC Asia ex Japan index – by more than 20 percentage points in the process. On top of that, no other IA Asia Pacific ex Japan funds have managed to beat that return over the period in question.
Performance of fund versus sector and index since Oct 2012
Source: FE Analytics
The fund was top quartile in 2013 and outperformed again in 2014, but is currently down relative to its benchmark in 2015 despite the fact it has gained 2.53 per cent year to date.
Data from FE Analytics shows BlackRock Global Funds Asian Growth Leaders’ largest overweight bets are China, India and Thailand while its biggest sector overweights include financials, information technology and materials.
Its ongoing charges figure (OCF) is 1.11 per cent.
Schroder Asian Alpha Plus
Like BlackRock Global Funds Asian Growth Leaders, Matthew Dobbs’ Schroder Asian Alpha Plus is by no means directly comparable to the Hermes Asia ex Japan fund, but the team at FE Research think it is either a good core or satellite holding for investors.
Amandine Thierree, analyst at FE Research, says the manager does have a degree of a value-bias within his portfolio and due to his investment approach and consistent performance, the £585m fund features on the FE Select 100.
“Dobbs studies the attractiveness of different industries to determine the areas where companies can make money in the long term, meaning some sectors, such as utilities, are automatically excluded,” she said.”
“He then uses the extensive resources available to Schroders in Asia to assess each company and its financial health, and ensures the interests of the management team are the same as those of its shareholders.”
Thierree added: “This allows Dobbs to establish a price target for the share and to identify opportunities in Asian markets.”
Our data shows Schroder Asian Alpha Plus has been the seventh best performer in the IA Asia Pacific ex Japan sector since its launch in November 2007 with returns of 89.66 per cent, comfortably beating its benchmark which has returned some 40 percentage points less over that time.
Performance of fund versus sector and index since Nov 2007
Source: FE Analytics
The fund has also outperformed in five of the last seven calendar years since its launch, the exceptions being 2008 and 2013.
Dobbs is currently underweight mainland China and financials. The OCF is 0.94 per cent.
Fidelity Asian Values PLC
Given the lack of value-orientated funds in the open-ended sector, investors may want to take a closer look in investment trust land.
Though not exactly the same as Hermes Asia ex Japan, Unicorn’s Peter Walls says that if investors want a stock picking manager for their Asia exposure – like Pines – they should consider FE Alpha Manager John Lo and his Fidelity Asian Values trust.
Walls has recently topped up his exposure to the trust given its wide discount (11.07 per cent) and as the outlook for Asian equities looks increasingly positive, given the low valuations on offer and the expected boost that a lower oil price will give to economies such as India and China.
“Lo definitely has a bottom-up approach and it’s not the sort of portfolio which just follows the benchmark as it has an active share of 97 per cent,” Walls explained. “Lo takes a very individual approach and has been doing it well for about 25 years.”
Lo has managed Fidelity Asian Values since September 2001 and, according to FE Analytics, it has returned 405.9 per cent to shareholders over that time beating its MSCI AC Far East ex Japan benchmark by close to 110 percentage points.
Performance of trust versus sector and index since Sep 2001
Source: FE Analytics
The investment trust has also beaten the index over one, three, five and 10 years.
Lo, who has the ability to go short within the portfolio, is currently overweight information technology and consumer discretionary, but is underweight financials, energy and materials.
The trust’s current 11.07 per cent discount is in line with its one-year average, but wider than its three-year average and has traded on a 7 per cent discount at points over the past 12 months. It is geared at 11 per cent and has ongoing charges of 1.5 per cent.