The mining industry in the sector has been booming, helped by strong demand from emerging markets – namely China. However, the well documented slow-down in the world’s second largest economy has finally caught up with the Australian currency and stock market, sending both plummeting in the last month or so.
Performance of currency and index in 2013
Source: FE Analytics
Versus the US dollar, the Australian dollar has fallen around 13 per cent since the middle of March, while the MSCI Australia index has shed almost 16 per cent over the period.
Australia bulls point out that a falling currency should support equity markets in the longer-term, and argue that the country is not as heavily dependent on China for trade as many people assume; however, there are big concerns surrounding the medium-term outlook for the country, especially with Federal Reserve policies expected to put further pressure on the currency.
With this in mind, FE Trustnet looks at some of the high-profile funds with a major weighting to Australia.
Asian income
Jason Pidcock’s £4bn Newton Asian Income fund has one of the biggest positions in Australia of any fund in the IMA universe, at 29.79 per cent. Australia is popular with income-focused Asian funds, as its companies have a more established history of paying dividends compared with other countries in the region.
Pidcock recently told FE Trustnet that he has no plans to cut his exposure to the region, and has actually added to an individual position in light of the recent sell-off.
Gavin Haynes, managing director at Whitechurch, says he is concerned by the move, but is not giving up on the five crown-rated fund just yet.
"Australia is in many ways a geared play on Chinese demand going up," said Haynes.
"We feel the currency is extremely overvalued and though we still have exposure to Newton Asian Income, we see its weighting to Australia as an issue and it is something we’ll be reviewing as a result."
"It does seem like a country that’s in a bit of a bubble and the 10 per cent sell-off in the last month or so has hit the performance of the Newton fund."
Australia & New Zealand Bank and mobile phone provider Telstra are both top-10 holdings for Pidcock.
Performance of fund vs sector and index over 3months
Source: FE Analytics
Newton Asian Income has fallen by slightly more than its sector and benchmark in the last three months, during which time both emerging Asia and Australia have had a rough time.
This is unusual, given that the portfolio has tended to protect far more effectively against the downside compared with its peers. Our data shows it was a top-decile performer in its sector in the down years of both 2008 and 2011.
It boasts top-quartile returns in its sector over one, three and five years.
A number of other Asian income funds have significant exposure to Australia, including the L&G Asian Income fund, which has a 30.69 per cent weighting; Schroder Asian Income Maximiser, which has a 26.55 per cent weighting; and Henderson Asian Dividend Income, which has a 17.1 per cent weighting.
All three funds have underperformed the IMA Asia Pacific ex Japan sector average over the past three months.
Invesco Perpetual Asian Equity Income has the lowest weighting to Australia of all the Asian Income funds in the IMA universe, at 10 per cent.
Asian growth
While there is a more pressing case for Asian income funds to have significant exposure to Australia, some growth-focused funds in the IMA Asia Pacific ex Japan and IMA Asia Pacific inc Japan sectors also have a hefty weighting to the region.
The Tiburon Taipan fund has the most of all the growth-focused funds overall, at 32.5 per cent. It refers to Australia directly within its fund objective, suggesting it has an inherent bias towards the region.
Higher-profile names with more than 20 per in Australia include Baring Far East Ex Japan, Standard Life Asian Pacific Growth, Veritas Asian and F&C Asian Alpha. All of them but the Veritas fund have underperformed over the last three months.
There are a whole host of funds that have between 10 and 20 per cent of their assets in Australia, including some of the highest-profile names in the entire sector.
First State Asia Pacific and Aberdeen Asia Pacific have 13 and 12 per cent in the country respectively, but this hasn’t been enough to derail performance; our data shows they have both delivered top-quartile returns in the IMA Asia Pacific ex Japan sector over the past three months.
Trackers
The Asia funds with the highest exposure to Australia are tracker funds.
While the likes of Vanguard Pacific ex Japan Stock Index and HSBC Pacific Index attempt to replicate the performance of emerging Asian indices, they do so by investing a lot of their assets in companies domiciled in Australia.
The Vanguard fund’s objective reads: "The fund seeks to provide long-term growth of capital by tracking the performance of the MSCI Pacific ex-Japan Index, which is made up of common stocks of companies located in Australia, Hong Kong, New Zealand and Singapore."
Our data shows that the Vanguard Pacific ex Japan Stock Index has 63.7 per cent in Australia. SSga Asia Pacific ex Japan Equity Tracker has 45.89 per cent in the country, Royal London Asia Pacific ex Japan Tracker has 34.9 per cent, L&G Pacific Index has 34.52 per cent, and HSBC Pacific Index has 32.13 per cent.
The Vanguard fund tracks the MSCI Asia Pacific ex Japan index. The others track the FTSE All World Asia Pacific ex Japan index.
Performance of funds vs sector over 3months
Source: FE Analytics
All of them have fallen short of the IMA Asia Pacific ex Japan sector average over three months. Vanguard is the worst performer, with losses of 12.75 per cent, and also happens to be the biggest investor in Australia.
Natural resources
Funds that focus on commodities have had a tough time of late, but those with an overweight in Australia have been hit with an extra blow.
The Ruffer Baker Steel fund has 26 per cent in Australia, making it its biggest regional weighting overall. It has shed a massive 44 per cent in the last three months alone, but had been bleeding money for a long time prior to this. Our data shows it is down more than 60 per cent over the last three years.
Other major investors in Australia include JPM Global Mining, M&G Global Basics, JPM Natural Resources and First State Global Resources, which have between 12 and 14 per cent in the country apiece. All have lost money over the past three months.
Australia
There are two pure-Australian funds in the IMA universe – Oceanic Australian Natural Resources and Baring Australia. Needless to say, both have had a very tough three months, down 22 and 14.16 per cent over the period, respectively.
Performance of funds over 3months
Source: FE Analytics
The Oceanic fund has a hefty portion of its assets in cash at the moment, at 10 per cent. However, Baring Australia is fully invested.
