Stewart Investors Asia Pacific, Aberdeen Global Asian Smaller Companies and Newton Asian Income have been among the best options for investors seeking exposure to Asian equities who are unwilling to take on too much volatility, according to the latest study from FE Trustnet.
Meanwhile, Baillie Gifford Pacific and T. Rowe Price Asian Ex Japan Equity top the list for investors willing to take on more risk.
For investors with an interest in Asian equities it should be noted that key benchmark MSCI Asia Pacific ex Japan is dominated by China, with the market representing 29.2 per cent of the index, as the below chart shows.
Weighting of MSCI Asia Pacific ex Japan index
Source: MSCI
However, the broad Asian index has outperformed the MSCI China index with less volatility, according to data from FE Analytics.
As such, it should be of little surprise that the best performing fund sitting in the top quintile (20 per cent) of the IA Asia Pacific Excluding Japan sector for lowest volatility is one that has a low weighting to China and is more geographically diversified.
The £745m Stewart Investors Asia Pacific fund is run by Ashish Swarup since 2015 with Tom Allen joining in 2017; the pair took charge from long-tenured manager Angus Tulloch who retired last year.
Over the past decade it has been the second-best performer in the sector, returning 240.95 per cent, with volatility of 15 per cent – the lowest in the sector.
Currently the portfolio is largely weighted to India (30.5 per cent), with other overweights to Hong Kong and Singapore with 10.9 per cent held in cash.
Conversely, it is underweight South Korea, Australia and China, the three largest segments of the benchmark.
From a sector perspective it still has a focus on quality, although since Swarup and Allen took charge they have moved slightly further down the market capitalisation scale and reduced the number of holdings.
Aberdeen Global Asian Smaller Companies is next on the list, having returned 227.14 per cent over the past decade with volatility of 15.57 per cent.
This fund may surprise some as smaller companies – categorised as under $5bn at the time of investment – are typically more volatile than their larger peers thanks to their illiquid nature.
The $1.3bn fund is also underweight China, while overweight India and Singapore, with a preference for consumer discretionary and industrial stocks.
The third and final fund to return more than 200 per cent to investors over the past decade with top quintile volatility is Newton Asian Income.
The fund has been managed by Zoe Kan since June 2016, who became lead manager shortly after long-time manager Jason Pidcock left to join Jupiter Asset Management.
Over the last decade, the £1.2bn fund has returned 219.79 per cent while experiencing volatility of 15.36 per cent.
It is overweight in financials, industrials and telecoms stocks with its largest country exposures to Australia and Singapore. Again, it is heavily underweight China.
Having already looked at the UK, global and European funds, low-volatility strategies have provided investors with the higher probability of hitting on a top performer and in Asia the pattern continues.
Indeed, five of the 12 funds in the top quintile for volatility have also provided top quintile returns, as the below table shows, with Fidelity Asian Special Situations and Schroder Asian Income joining the three named above.
Table of top quintile volatility funds over 10yrs
Source: FE Analytics
Conversely, only Legg Mason Martin Currie Asia Pacific is a bottom quintile performer over the period with top quintile volatility. Elsewhere, there is an even split of two funds in each of the second, third and fourth quintiles.
At the more volatile end of the sector, Baillie Gifford Pacific is the only fund in the bottom quintile for volatility that has achieved top quintile returns.
The four FE Crown-rated fund is managed by Roderick Snell and Ewan Markson-Brown and in keeping with Baillie Gifford funds has a strong growth bias.
When Snell took over in 2010 there was a shift in direction to a more long-term view of growth companies. The managers now take a five-year view on stocks with a maximum annual turnover of 20 per cent.
The £414m portfolio is overweight China and South Korea with technology names Tencent, Alibaba and Samsung Electronics its top three holdings.
Unlike other geographical sectors already covered in this series, the bottom quintile for volatility includes a higher than average number of second quintile performers.
T. Rowe Price Asian Ex Japan Equity joins Baillie Gifford Pacific as the only other fund from the table above to achieve a return of more than 200 per cent.
Table of bottom quintile volatility funds over 10yrs
Source: FE Analytics
The $732m fund is managed by Anh Lu, who prefers industry-leading companies who display strong earnings prospects. However, it has had a choppy ride, particularly in 2013 and 2016 when the market was driven by low-quality stocks.
As such, it has made a return of 205.86 per cent over the last 10 years while experiencing higher than average volatility of 19.11 per cent.
The portfolio is broadly in-line with the benchmark, although it is 4.5 percentage points underweight South Korea, and is heavily skewed to technology names, which make up 36 per cent of the fund.
The most volatile fund in the IA Asia Pacific ex Japan sector however has been second-quintile performer Janus Henderson Asia Pacific Capital Growth, with volatility of 20.71 per cent.
The five FE Crown-rated fund, managed by Andrew Gillan since 2014 and deputy Mervyn Koh (who joined him in 2015), has returned 175.44 per cent over the last decade.
Gillan took over from John Crawford, who had been in charge since 2005 alongside Andrew Beal, following his move from Aberdeen Asset Management.
Another that is highly-weighted to tech stocks, the fund has 41.2 per cent in the sector including Alibaba, Samsung and Taiwan Semiconductor Manufacturing as its top three holdings.
At a country level it is underweight China although it remains the portfolio’s largest country weighting at 20.7 per cent. India, Taiwan, Hong Kong and South Korea are the next highest weightings.
Standard Life TM Pacific Basin is the only third-quintile performer in the table, with four funds in the fourth quintile for returns and just two funds in the bottom quintile for both performance and volatility.