Veritas Asian, Invesco Perpetual Asian and JPM Asia are some of the vehicles within the IA Asia Pacific ex Japan sector to have achieved the strongest five-year returns through genuinely active management while offering some of the lowest ongoing charges, research from FE Trustnet shows.
This comes as the final instalment in our series, which has honed in on each equity sector in the Investment Association universe and each fund's five-year total returns, alpha generation, information ratios and OCFs (ongoing charges figures).
Discounting all funds with less than five-year track records, passive funds and institutional-only vehicles, we calculated the average for each of the above metrics.
After whittling the list down to the funds that achieved above-average scores in each category, we then 'double distilled' the data by re-running the averages and reducing the list once again. In the case of the IA Asia Pacific ex Japan sector, we were left with three funds – as shown in the below table.
Source: FE Analytics
Out of these, the fund with the lowest OCF is Veritas Asian at 0.75 per cent (for reference, our 'double distilled' OCF average came out as 0.99 per cent). It also has an information ratio – which assesses the degree to which a manager uses skill and knowledge to enhance the fund returns – of 1. According to FE Analytics, a ratio of 0.5 is 'good', 0.75 is 'very good' and 1 is 'outstanding'.
The five FE Crown-rated fund has been headed up by FE Alpha Manager Ezra Sun since 2004, and aims to provide long-term capital growth through a concentrated portfolio of 41 holdings. It is domiciled in Ireland and is £540m in size.
Over five years, the fund has outperformed its average peer and its MSCI AC Asia Pacific ex Japan index by 53.8 and 52.95 percentage points respectively with a total return of 127.14 per cent. It has done so with a maximum drawdown – which measures the most money lost if bought and sold at the worst possible times – of 13.94 per cent compared to its benchmark's drawdown of 20.9 per cent.
Performance of fund vs sector average and benchmark over 5yrs
Source: FE Analytics
It also has a Sharpe ratio – which measures risk-adjusted returns – of more than double that of the benchmark and, out of our list of three funds in the sector, has the highest five-year alpha generation of 7.42.
This means that if its benchmark is presumed to have returned absolutely nothing over five years, the fund would have returned an additional 7.42 per cent.
The second fund on our list for its OCF of 0.93 per cent is JPM Asia, which also has a five-year alpha generation of 3.93 and an information ratio of 0.72.
Investors should note that the five crown-rated fund has only been headed up by co-managers Joanna Kwok and Mark Davids since April 2015, following the departure of Edward Pulling after almost 14 years at its helm.
Kwok and Davids are unafraid to take punchy bets away from the benchmark. For example, the £164m fund currently has notable regional overweights to China and Indonesia but is underweight Korea, Taiwan, Malaysia and India. Its largest individual holdings include Samsung Electronics, Tencent and Alibaba. The managers also have the flexibility to be concentrated at any time they deem it to be useful to the fund's performance and they are able to invest across the cap spectrum. However, companies they invest in rarely fall below £1bn in size.
Over the last five years, the fund has returned 103.03 per cent compared to its sector average and benchmark's respective returns of 73.34 and 81.79 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
It has done so with a top-quartile maximum drawdown of 17.13 per cent as well as a top-quartile Sharpe ratio and annualised volatility.
The third and final fund on our list with an OCF of 0.95 per cent is Invesco Perpetual Asian, which has been headed up by William Lam since 2015. While this is not a particularly long period of time, he worked alongside former manager Stuart Parks (who had run the fund since 2005) for two years before he left.
The five crown-rated fund boasts a five-year alpha generation of 4.52 and an information ratio of 1.02. Over the last five years, it has outperformed its average peer and the MSCI AC Asia Pacific ex Japan index (which it is not benchmarked against) by 40.67 and 39.82 percentage points respectively with a total return of 114.04 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Manager Lam aims to find companies that he deems to have been undervalued by the broader market, which often leads him to focus on unloved sectors. He also adopts a series of themes when selecting stocks – all of which range from being contrarian to being popular – such as Chinese internet, South Korea and undervalued balance sheets. The fund's largest individual holdings are Samsung Electronics, JD.com and Baidu.
When it comes to its risk metrics over five years, the £1.2bn fund is in the third quartile for its maximum drawdown of 20.78 per cent and in the bottom quartile for its annualised volatility, which means it may not be best-suited to more cautious investors. That said, it is in the top quartile for its Sharpe ratio which shows that, in the past, patient investors with strong stomachs have indeed been rewarded.
Other funds that were close to making the list but have slightly higher OCFs than our 'double distilled' average include GS Asia Equity Portfolio, Standard Life Investments Asian Pacific Growth and BlackRock GF Asian Dragon.
To read further articles in this study, please click the links below.
The UK funds giving you the most alpha for your buck
The global funds giving you the most alpha for your buck
The European funds giving you the most alpha for your buck
The emerging market funds giving you the most alpha for your buck
The Japanese equity funds giving you the most alpha for your buck