Asian equity funds run by Veritas Asset Management, Hermes Investment Management and Goldman Sachs Asset Management sit at the very top of their peer group for a combination of closely watched metrics, research by FE Trustnet shows.
For the next article in this ongoing series, we have reviewed IA Asia Pacific ex Japan funds for their five-year returns up to the end of 2017, the annual returns of 2017, 2016 and 2015, annualised volatility, alpha generation, Sharpe ratio, maximum drawdown and upside and downside capture relative to the sector average.
We then looked at the funds’ average decile ranking for each of these 10 rankings to find out which funds have most consistently been among the very best of their peer group for a wide range of return and risk measures.
Performance of fund vs sector and index over 5yrs to end of 2017
Source: FE Analytics
FE Alpha Manager Ezra Sun’s $1.6bn Veritas Asian fund has taken the lead in this research after establishing an average decile ranking of 2. As the chart above shows, its top-decile 130.62 per cent total return is far higher than that made by its average IA Asia Pacific ex Japan peer or benchmark; the fund is also in the first decile for its 2015 performance, alpha, annualised volatility, maximum drawdown, Sharpe ratio and downside capture.
Sun has more than 20 years of experience in Asian equity investing and runs the five FE Crown-rated fund with a process that combines a thematic approach with bottom-up stock selection. Holdings are split between ‘core’ positions – or steadier stocks, often dividend payers, that are exposed to a structural growth theme – and ‘trading’ positions – or shorter-term opportunities that aim to capitalise on market inefficiencies and earnings momentum.
Close to two-fifths of the portfolio is invested in China, with 17.6 per cent in Australia and 10.6 per cent in India. The largest sector allocations are to information technology (24.2 per cent), financials (19.6 per cent) and consumer staples (14.7 per cent), with top holdings including Tencent, AIA Group and Treasury Wine Estates.
As the table below reveals, Hermes Asia ex Japan Equity is in second place with an average decile ranking of 2.3. The $4bn fund is in the first decile for five-year returns (the sector’s highest at 161.97 per cent), 2015 performance, alpha, Sharpe ratio, upside capture and downside capture; it is in the eighth decile, however, for its volatility.
The fund is managed by FE Alpha Manager Jonathan Pines, who invests across the market cap spectrum with a philosophy that is inherently contrarian and has a value bias.
Square Mile Investment Consulting & Research said: “The underlying investment philosophy of this strategy, for which the manager shows clear passion and commitment, is fairly straightforward. Mr Pines could be viewed as an opportunistic investor, looking to invest where there is a valuation discrepancy between the market valuation and the team's analysis of valuation.
“However, and importantly for a strategy such as this, Mr Pines is also deeply aware of the potential loss for any investment and hence looks for a margin of safety before any purchase is made.”
Source: FE Analytics
GS Asia Equity Portfolio also scored 2.3 in this research but has produced a lower five-year return than the Hermes offering.
That said, the $141.5m fund is still in the IA Asia Pacific ex Japan sector’s top decile for returns in 2017 and 2015, alpha, annualised volatility, maximum drawdown, Sharpe ratio, upside capture and downside capture; its average has been dragged down by bottom-decile performance in 2016.
The five FE Crown-rated fund seeks to “capitalise on the growth potential in Asian markets by identifying mispriced stocks that represent alpha opportunities through intensive bottom-up, fundamental research”. Its largest geographic allocations are to China/Hong Kong, Korea and India; Tencent, Samsung Electronics and Taiwan Semiconductor Manufacturing are the three biggest holdings.
The largest fund in the IA Asia Pacific ex Japan sector is BlackRock GF Asian Dragon, which has assets under management of $5bn and is headed up by Andrew Swan. The fund has a decent position in this research, being ranked in 12th place out of 79 funds in the sector thanks to an average decile ranking of 3.4.
The fund, which is in the top decile for five-year total return, Sharpe ratio and upside capture, has a style-agnostic process that combines top-down and bottom-up analysis in a bid to outperform in different market conditions. At the moment, the portfolio is overweight China, India, industrials and financials.
Other large members of the peer group include the $4.5bn Templeton Asian Growth fund (ranked 78th with an 8.7 average decile ranking), £2.9bn Fidelity Asia fund (ranked fifth with a 2.7 average decile ranking), €2.8bn Vanguard Pacific ex-Japan Stock Index fund (ranked 70th with a 7.7 average decile ranking) and the £2.2bn Invesco Perpetual Asian fund (ranked 11th with a 3.4 average decile ranking).
Performance of fund vs sector and index over 5yrs to end of 2017
Source: FE Analytics
Natixis Emerise Pacific RIM Equity has come in last place in this research, owing to a score of 9.3. The $208.3m fund is in the IA Asia Pacific ex Japan sector’s tenth decile for its five-year total return, alpha generation, maximum drawdown, Sharpe ratio, upside capture and downside capture.
Other funds at the bottom of the table include Templeton Asian Growth, Baring ASEAN Frontiers, Aberdeen Global Asian Smaller Companies, Aberdeen Global Asia Pacific Equity and Aberdeen Asia Pacific Equity.