Asia Pacific  

Why China is still key to rising stockmarkets

  • Grasp the factors driving the Asia ex-Japan regions performance in recent years
  • Learn which funds have prospered here, and why
  • Understand the role of specific countries and sectors here
CPD
Approx.45min

But the vehicle remains interesting because of its different take on the asset class. It is slightly underweight tech, which accounts for 27 per cent of the fund versus 30 per cent of its benchmark. It is even more averse to financials, which make up 9 per cent of the portfolio compared with 21 per cent in the benchmark.

Instead, the fund has spread investments across a variety of sectors, most notably consumer discretionary and consumer staples – the two biggest overweights. 

Over 10 years, the strongest performer is Fidelity Asian Values, though Nitin Bajaj has only been lead manager on the trust since 2015. Like the Hermes fund, it too focuses on the consumer discretionary sector at the expense of financials. 

More notable still are its underweights to technology, which make up just 11 per cent of the portfolio, and China – which accounts for half its index weighting of 36 per cent. Proof, were it needed, that outsize returns can come from other areas of the Asia ex Japan region. In this case, India and Indonesia are the most notable country bets.

Positive outlook

Viewed as a whole, the table shows it’s been plain sailing for the best funds and trusts in the sector over the past five years. Only three of the 100 discrete annual periods assessed show negative returns, and double-digit performances have been the norm for many funds.

Inevitably, such performance prompts caution about the times ahead. But we have been here before, particularly when China is concerned. 

Asking when a reversal may come looks suspiciously like market timing. Of equal consideration is the fact that Asia ex Japan funds have made a good case to be a valid alternative to broader emerging market portfolios.

 

Asia ex Japan funds: Five questions to ask

1. How much choice is there for investors?

There are 102 funds in the Investment Association (IA) sector and 15 trusts in the Association of Investment Companies’ equivalent grouping. Many open-ended funds have equivalents – run by the same manager – in the closed-ended sector.

2. Are there less volatile funds available?

Unsurprisingly, funds that focus on producing income rather than growth have tended to be less volatile. Income offerings from the likes of Schroders, Newton and Janus Henderson have proven the least erratic in the sector over the past five years.

3. How popular have funds proven?

The IA sector has taken in a net £1.3bn over the past nine months, ranking it ahead of the Global Emerging Markets, North America and three UK sectors but behind the Japan, Europe ex UK and Global groupings.

4. What rules govern funds in the sector?

CPD
Approx.45min

Questions appear on the last page of this article.