This has proved to be a shrewd move recently, following a boom in China’s stock market this year as well as a strong performance in North America and returning growth in Europe and Japan.
With this in mind and as the final instalment in our series of top-performing but volatile funds, FE Trustnet takes a look at funds from different regional sectors that would perhaps be suited to the strong-stomached investor.
T. Rowe Price US Blue Chip Equity
Out of the 125 funds within the IA North America sector, this fund has the eighth-highest alpha score over five years, which measures the returns the fund has been able to add over its benchmark, of 2.64.
It’s common knowledge that the efficiency of the US market makes it challenging for active managers to outperform their benchmarks. T. Rowe Price US Blue Chip Equity has beaten the S&P 500 in five of the past 10 full calendar years, leading to outperformance of around 30 percentage points over the past 10 years.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
However, the fund has also endured a rockier road than most, sitting in the bottom-quartile for 13.75 per cent annualised volatility.
Manager Larry J Puglia, who launched the fund in 2003, isn’t afraid to stray away from the benchmark, which can be shown in his tracking error rating of 5.66 per cent.
While primarily investing in well-known large-and medium-cap US corporations, the fund is overweight in the consumer discretionary sector and the healthcare sector, allocating 24.3 per cent and 25.4 per cent to each respectively.
The fund also has large underweights in consumer staples, energy and financials compared to its benchmark.
T. Rowe Price US Blue Chip Equity has an annual management charge of 1.5 per cent.
The five FE Crown-rated Melchior Asian Opportunities fund is ranked top-decile for its performance over one, three and five-year investment horizons.
The fund has done particularly well over five years, achieving a total return of 68.99 per cent and pipping both its sector and benchmark to the post by 24.42 and 15.94 percentage points respectively.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Headed up by Henrietta Luk since its launch 10 years ago, the fund has a top-quartile alpha ratio over five years of 2.31. What’s more, the fund has a top-quartile Sharpe ratio, which measures risk-adjusted returns, of 0.32.
However, Melchior Asian Opportunities’ volatility rating is bottom-quartile over five years at 16.26 per cent.
The manager has built a high-concentration portfolio of just 36 stocks and uses a bottom-up investment approach. Almost half of the fund is in the information technology sector, which is a substantial overweight of 24.2 percentage points and more than double that of its benchmark.
In terms of country allocation, Luk primarily invests across just four countries in the Pacific Basin – the fund’s largest weighting is in Hong Kong at 29.2 per cent and it also holds 23.9 per cent in South Korea, 21.6 per cent in Taiwan and 20.8 per cent in China.
Melchior Asian Opportunities has a net ongoing charges figure of 1.23 per cent.
Out of the 65 funds in the IA Japan sector, Legg Mason Japan Equity has the highest alpha rating of 14.69.
However, it also has by far the highest annualised volatility rating at 23.46 per cent and the worst maximum loss, which measures the longest-running consecutive loss without a gain, of 22.18 per cent.
The fund has underperformed its sector average over 10 years, achieving a total return of just 16.07 per cent and underperforming its peers by 50.9 percentage points.
Performance over five years has been very strong, achieving a total return of 178.09 per cent and almost quadrupling the performance of its sector average.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fund’s aggressive approach means it tends to perform very well in a rising market but significantly underperforms in difficult conditions. For example, it made 63.65 per cent in 2013 when the Topix rose 25.03 per cent; conversely, it lost 50.56 per cent in 2006 when the Topix was down 10.48 per cent.
Legg Mason Japan Equity has a clean ongoing charges figure (OCF) of 1.12 per cent.
Templeton Emerging Markets Smaller Companies
Mark Mobius’s five FE Crown-rated fund has achieved consistent top-decile performances over one, three and five-year periods.
Over five years, the fund managed to outperform its peer average in the IA Global Emerging Markets sector by 29.19 percentage points and the MSCI Emerging Markets Small Cap index by 14.79 percentage points, providing a total return of 46.62 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
What’s more, the fund has achieved third place out of the 85 funds in its sector with both its top-decile alpha ratio of 4.75 and its top-decile Sharpe ratio of 0.2.
However, the £302.7m fund has a bottom-quartile annualised volatility of 15.89 per cent, a bottom-decile max loss of 25.28 per cent and a bottom-decile maximum drawdown of 37.89 per cent.
Mobius is renowned for exploring out-of-favour frontier markets and holding them over the long term, which contributes to the fund’s high level of risk but also the potential for higher returns.
Last month, the manager explained why he is interested in investing in Vietnam and Cuba, which are two areas of the market that are generally unloved by investors.
Templeton Emerging Markets Smaller Companies invests in small stocks in small markets because Mobius believes they are under-researched and have a greater chance that many of these companies are undervalued.
The fund has a clean OCF of 1.65 per cent.