Hermes Asia ex Japan Equity was recently tipped by advisers on FE’s AFI panel of leading financial advisers as a little-known fund set to shine – having beaten heavy hitting rivals in the sector run by Aberdeen, First State and Baillie Gifford.
“We view this relatively new proposition as an interesting strategy that is truly doing something different compared with many of its peers,” Square Mile said.
“The manager, Jonathan Pines, is supported by a small but dedicated team of analysts and has managed the strategy since launch in 2010.”
The portfolio has five FE Crowns and a stellar track record. Not only has it beaten its MSCI Asia ex Japan IMI index benchmark over the past 12 months, it has also been one of the best performers in the IMA Asia Pacific ex Japan sector over this period.
The fund has gained 49.8 per cent since it opened to external investment in December 2012, well ahead of both the sector and index.
The benefit of its different strategy is evident from its performance since last summer, when it has soared ahead of its peers.
Performance of fund, sector and index since 2012
Source: FE Analytics
It has been the best-performing fund in the sector since launch, beating the second best-performer – First State Asia Pacific Sustainability – by 10 percentage points.
Much of the fund’s outperformance came when the Asia Pacific region was out of favour.
According to FE Trustnet research in April this year, the fund was the only one in the sector at the time to have made money since the severe market sell-off started in the region in May 2013.
In that period of extreme turmoil, the portfolio gained 7.68 per cent – making it the only one in the sector to deliver positive returns – while the sector and index fell nearly 10 per cent.
Performance of fund, sector and index from May 2013
Source: FE Analytics
The fund’s value-based strategy and focus on capital protection has helped it to succeed in difficult markets for the Asia Pacific, according to Square Mile.
The fund has the lowest max drawdown figure of any in the sector over the past year, which means that even if investors bought at the top and sold at the worst possible point, it would have lost less than its peers.
“The fund invests across the market capitalisation scale with the team’s investment philosophy having an inherently contrarian and value bias,” Square Mile said.
“They essentially believe in buying stocks that are attractively priced relative to the underlying quality of the company. Pines also remains deeply aware of the potential loss for any investment and therefore looks for a margin of safety before any investment is made.”
Some of Pines’ favourite stocks are in the consumer products sector, with superstore Cosco Pacific his number-one holding.
The manager is also backing Korean construction company Hyundai Engineering and Construction, Korean electronics giant Samsung and China’s version of Google, Baidu, in his top holdings.
Ryan Hughes (pictured), fund manager at Apollo Multi Asset Management, says he was one of the early investors into the fund.
“We originally invested in it about a year ago because we were looking for something with more flexibility and the ability to move around Asia,” he said.Hughes says Pines has been more willing than his peers to move aggressively around Asia to where he sees opportunities, rather than focusing on a benchmark – a trait that has paid off for the fund.
“That hasn’t been a characteristic of Asian funds over the last decade. They’ve generally been more benchmark aware and less consistent,” Hughes explained.
The manager thinks the fund's strategy can continue to help it perform well and that its smaller size relative to the giants of the sector will let it “play in the periphery” for lesser-known opportunities.
It is worth noting that the fund’s size has nearly doubled since April, which Hughes admits is quite a sharp uptake, but he says it still has plenty of room to grow before it is unable to operate with the same style that attracted him in the first place.
“The fund has got on more people’s radars, so assets have increased quite sharply, but not to the point where we’ve had any concerns. The fund still has plenty of room [to grow],” he said.
The fund features in nine multi-manager portfolios, including Apollo’s Multi Asset Cautious, Balanced and Adventurous funds and the T. Bailey Growth portfolio.
Hermes Asia ex Japan equity has ongoing charges of 0.89 per cent.
