The region has had a tough time in the last two years or so, but with global growth expectations on the up, and the Chinese recovery picking up momentum, many commentators are tipping funds in this area to shine next year.
For anyone interested in upping their exposure to the region, but remain cautious of the various threats to the recovery, a fund that has a proven record in protecting investors’ capital may be an appealing prospect.
Of the 84 funds in the sector, nine are top-quartile performers for volatility, downside risk, maximum drawdown and Sharpe ratio over five years.
Many of these, such as First State Asia Pacific and First State Asia Pacific Sustainability are now soft-closed, but the likes of Aberdeen Global Asian Smaller Companies, Newton Asian Income and Schroder Asian Income remain open.
All three of these have a five crown-rating.
Performance of funds and sector over 5-yrs
| Fund | Downside risk | Max drawdown | r2 | Relative return | Sharpe ratio | Volatility |
|---|---|---|---|---|---|---|
| Aberdeen Global Asian Smaller Companies | 16.56 | -31.03 | 0.60 | 12.98 | 0.82 | 16.07 |
| Newton Asian Income | 20.94 | -38.65 | 0.87 | 8.38 | 0.44 | 19.14 |
| Schroder Asian Income | 21.22 | -39.31 | 0.90 | 6.46 | 0.34 | 19.31 |
| IMA Asia Pacific ex Japan | 23.62 | -46.68 | 1.00 | 0.00 | 0.00 | 22.24 |
Source: FE Analytics
The standout performer of these is the $2.4bn Aberdeen Global Asian Smaller Companies fund.
The fund disproves the stereotype that investing in the smaller end of the market is a more risky strategy as, according to FE Analytics, it is the best performer in the sector in terms of downside risk and maximum drawdown.
The Luxembourg-domiciled vehicle has an annualised volatility of 16.07 per cent over five years, making it, again, number-one in the sector over five years.
It has the best total return and, inevitably, the best risk-adjusted return over the period as well.
This is found by calculating its Sharpe ratio, which measures a fund’s return over and above the level of a notional risk-free investment. The difference in returns is then divided by its standard deviation.
Aberdeen Global Asian Smaller Companies has returned 122.10 per cent over five years, beating the sector by 102.19 percentage points.
Performance of fund vs sector over 5-yrs
Source: FE Analytics
The fund has 97 holdings and its highest regional weighting is in Hong Kong, accounting for 18.1 per cent of AUM.
It has a total expense ratio (TER) of 2.06 per cent and requires a minimum investment of £1,500.
Jason Pidcock’s Newton Asian Income fund has become more and more popular as investors look to diversify their income sources away from the UK.
Many industry commentators expect yield-seeking investors to raise their exposure to Asia due to the trend among corporates of increasing their dividends over the years.
Newton Asian Income has capitalised on this and is the second-best performing portfolio in the sector over five years, with returns of 78.86 per cent and a yield of 4.85 per cent.
The fund has a maximum drawdown of 38.65 per cent and is the fifth-least volatile fund in the sector over this period.
A fund’s maximum drawdown shows how much an investor who bought and sold at the worst possible moments would have lost. The worst performer in the sector – Melchior Asian Opportunities – has a max drawdown of 63.82 per cent over five years.
Newton Asian Income has 29 per cent in financials, which is its highest sector weighting. Australia & New Zealand Bank is its largest holding.
Pidcock’s portfolio requires a minimum investment of £1,000 and has a TER of 1.66 per cent.
Richard Sennitt’s Schroder Asian Income fund is Pidcock’s closest rival in terms of funds that have been able to deliver high returns with a low-risk approach.
Over five years, the fund has returned 65.70 per cent and has the sixth-lowest volatility in the IMA Asia Pacific ex Japan sector over the period, thus falling slightly behind Newton Asian Income.
Schroder Asian Income was launched back in 1991, so it is the only fund in the list that has a 10-year track record. It is top quartile in terms of maximum drawdown, downside risk and Sharpe ratio over the last decade.
It has slightly underperformed against the sector and has returned 244.29 per cent over 10 years, but is the second-least volatile portfolio over the period.
It is currently yielding 4.39 per cent.
Performance of fund vs sector over 10-yrs
Source: FE Analytics
It has a TER of 1.70 per cent and a minimum investment of £1,000.