The Indian equity market has shrugged off domestic economic issues such as demonetisation (the withdrawal of larger bank notes from circulation) to post a 74 per cent gain in sterling terms over the past half decade.
Performance
Table 1 shows the best performers in the region for the five years to 30 June this year.
Many of the better funds are indeed overweight technology, not least the investment trust that tops the pile.
Baillie Gifford Pacific Horizon holds around half its portfolio in such sectors, and has returned £2,355 on £1,000 over the past five years. That puts it narrowly ahead of an open-ended fund, the Hermes Asia ex Japan portfolio run by Jonathan Pines, which has delivered £2,351 over this period.
Discrete returns show the Hermes fund has been less volatile than Pacific Horizon, avoiding the latter’s negative return in 2015-16. On the other hand, it has a shorter track record, having only launched in 2012, and is currently closed to new investors.
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.
