First State Asia Pacific is already closed to new money and Aberdeen is set to follow suit with Hugh Young’s Asia Pacific fund in the coming months.
First State is also looking to slow inflows into its £7.2bn Asia Pacific Leaders fund – a pre-cursor for a soft-closure.
As a result, there is now a severe shortage of established options in the IMA Asia Pacific ex Japan sector. Rowan Dartington’s Tim Cockerill lamented this in a recent interview, and FE Research’s Rob Gleeson told FE Trustnet that he is starting to look at investment trusts because of the lack of viable alternatives.
"When it comes to this kind of fund, I want something that has experienced guys in charge, that I don’t have to worry about, which is what Aberdeen and First State offer," said Cockerill.
"It’s difficult to see where you can now go if you want something like this."
Investors who would rather stick to open-ended funds will have to think outside the box, and maybe look to an option with a shorter track record.
One possible alternative is Samir Mehta’s £75m JOHCM Asia ex Japan fund. It was only launched in September 2011, but has made a real impression, delivering top-decile returns of 53.6 per cent.
The fund has easily beaten its sector average and MSCI Asia ex Japan benchmark over the period, as well as both Aberdeen Asia Pacific and First State Asia Pacific Leaders, which have returned 35.74 and 36.97 per cent, respectively.
Performance of fund vs sector and index since Sep 2011
Source: FE Analytics
Cockerill says the low volatility and downside risk of the Aberdeen and First State funds are a big draw; however, both funds have been more volatile than Mehta’s since late 2011.
FE Analytics data shows that JOHCM Asia ex Japan has an annualised volatility of 8.3 per cent over the period, compared with 9.3 per cent from the First State fund and 10.8 per cent from the Aberdeen one.
Mehta’s fund also has the lowest max drawdown over the period, at just over 6 per cent, and has far and away added the most Alpha – or value – to its benchmark.
Unsurprisingly, it comes out on top on a risk-adjusted return basis, measured by the Sharpe ratio.
Risk/return of funds since Sep 2011
| Name | Alpha (%) | Max drawdown (%) | Sharpe (%) | Volatility (%) |
|---|---|---|---|---|
| Aberdeen Asia Pacific | 4.15 | -9.28 | 1.22 | 10.8 |
| First State Asia Pacific Leaders | 6.37 | -9.23 | 1.45 | 9.3 |
| JOHCM Asia ex Japan | 14.01 | -9.02 | 2 | 8.3 |
Source: FE Analytics
While sceptics will point to the length of track record, Mehta has a wealth of experience running funds. He formerly headed up the Lloyd George Asia Pacific and Lloyd George India funds.
He has returned 246.15 per cent since he started running IMA portfolios back in 2004, beating his peer group composite by more than 50 percentage points. The manager has been less volatile than his peers over the period as well.
Mehta says the ability to protect against the downside is of huge importance to his process and expects the fund to continue to score highly in this regard. "The portfolio is broken in to two – core quality, and cyclicals," he explained.
"The core quality part accounts for between 75 and 80 per cent of the fund at all times. These companies have high returns on capital, high and sustainable cash-flows and so on."
"These are growth businesses, which can keep growing over a market cycle – even during a downturn."
"Naturally, this means we have a sector bias, as areas like consumer, IT and pharms tend to have these characteristics."
Mehta says these stocks are typically long-term holdings, staying in the portfolio for three to five years on average, with a weighting of between 2.5 and 5 per cent.
"In the other part of the portfolio, we hold cyclicals," he continued. "These make up a much smaller part."
"These are more impacted by economic activity and are far more about finding value. The defensive part of the portfolio tends to be more expensive, but these ones are a lot cheaper."
The manager says he is currently finding a lot of opportunities in China and India, whose economies have struggled in recent years.
"In China, GDP growth has been poor, but we’ve been able to find a host of very good businesses that have continued to do well in the manufacturing, electronics and consumer discretionary sectors."
"The Chinese market is around one deviation below its long-term average in terms of price, so there is plenty of value."
Mehta does not hold Samsung Electronics or Taiwan Semiconductor – the two most popular stocks with emerging market funds – because they are too expensive, in his view.
"We prefer to offset the more expensive part of the portfolio with cheaper stocks in the cyclical part," he explained.
Mehta is also finding a lot of opportunities in south-east Asian countries.
"There’s a misconception that Asia is all about China," he said.
"The south-east Asian, ASEAN countries are really interesting. The likes of the Philippines, Thailand and Malaysia have gone through a real renaissance in recent years."
"The Asia crisis in the late 1990s hit them all really badly, but the banks have worked hard to sort out their balance sheets, and the whole region has prospered."
He is overweight the Philippines, Thailand and Vietnam, but slightly underweight Malaysia.
India is his biggest overweight, but he has nothing whatsoever in Taiwan, which makes up 14 per cent of the benchmark.
"Most Taiwanese stocks fall in to the cyclical category, with a big bias towards the IT and hardware manufacturing sectors," he said.
"These companies are predominantly associated with PCs, but with the rise of mobile tablets, I think they’re getting left behind. There is a structural shift taking place."
Some investors are likely to see the cost of the JOHCM fund as a drawback. It has an ongoing charges figure (OCF) of 1.98 per cent, and an annual performance fee of 15 per cent on all returns in excess of the MSCI Asia ex Japan index.
All underperformance is carried forwards, meaning that the manager has to make up for his losses before qualifying for the extra fee.
JO Hambro says the charge of the fund is likely to come down as assets under management (AUM) grow.
