Report: IMA Asia Pacific including Japan

This is a small and relatively insignificant sector, with just 9 constituents as at April 2008 (3 less than 6 months ago). This sector is similar to the IMA Europe including UK sector, which does not differentiate between continental Europe and the UK, in that it caters for investors who want a fund encompassing Asia as a whole, including the powerful Japanese economy.

Investors who want exposure to Japan generally tend to pick a Japan-only fund, rather than diluting it with other markets in the region. In the same way, exposure to Asia Pacific markets can be skewed by including the particular effects of the Japanese element.

The impact of Japan's long period of underperformance is reflected in data from Financial Express. Without Japan, Asia Pacific returned a sector average of 97.11% over the 3 years to April 2008. Including Japan held back this performance to 61.55%, with a narrow range of gains that spans 48.95% at the bottom to just 76.49% from the top fund.

The volatility range has increased, from a narrow band of between 11.1-13.6% from 6 months ago, to a now more varied 18-13.4%. This is despite return ranges contracting. Average volatility has increased to 14.95% from the 11.95% reported a mere 6 months ago.

One fund that strikes out from the rest is Schroder’s Far East Income fund, which produces one of the highest returns (72.46%), given the lowest annual volatility (13.41%) over this 3 year period.

This particular fund highlights the potential for returns from the growing level of dividend streams being experienced in this region as a whole as financial statement reporting has developed, with many more Asian income funds now being launched to tap into the new found income streams in these markets.

Overall funds within this sector tend to balance out the risks of investing purely in the more volatile high growth markets in Asia, such as China, with the safety offered by the fully developed Japanese market.

This is exemplified by the fact that despite this sector producing lower returns by excluding Japan, it is justified by producing a lower average volatility through including Japan in the mix.

Further analysis on Asian markets can been seen in the Japan and Asia Pacific excluding Japan sector reviews.

*Source of all data: Financial Express Analytics