Few Asia equity funds above benchmark

The US-China trade dispute has had consequences around Asia, where many countries are linked to mainland China via product supply chains, according to Barings.

“In overall terms, Asian exports have declined substantially largely due to their role in China’s supply chain,” said Khiem Do, head of Greater China investments.

“Singapore exports, Korean exports, Taiwanese exports, Chinese exports, they all tumbled down. It looks absolutely atrocious.”

With that in mind, FSA decided to look at the performance of the Asia ex-Japan equity sector. Among funds registered for sale in Hong Kong, there are 116 in the Asia ex-Japan equity category.

For cumulative three-year returns to end of June 2019, only 15 of them beat the reference index, the MSCI AC Asia ex Japan, which was up 39.8%.

The sector average (27%) also failed to beat the benchmark.

The top three-year performer was JP Morgan Asia Growth, up 59%. The managers, Mark Davids and Joanna Kwok, have a quality and growth bias, which seems to have paid off.

According to a Morningstar report, the fund has a relatively concentrated portfolio of 60 holdings and the managers look for companies “that boast quality franchises, consistent earnings streams, and solid returns on equity”.

Active share has been high, about 65%, according to a Morningstar report. That has helped the fund go well beyond the index.

                                Top five funds vs MSCI AC Asia ex-Japan and category average

Bottom performers

Looking at the worst performers over the measured period, only two funds out of 116 were in negative territory: the Schroder ISF Asian Smaller Companies and Macquarie Asia New Stars.

The Schroder fund may have had detractors in its top ten holdings — three were Korean companies. The Korea equities sector has been the worst performing equity category in 2019, according to FE data.

The Macquarie fund has been hit by key management departures. In August 2018, Sam Le Cornu, co-manager of the fund and co-head of the Asian listed equities team, and Duke Lo, co-head of China research and lead manager of the Macquarie Asian All Stars strategy, left.

Morningstar said in a report that their departures underscore “what has been a tumultuous year in terms of staff turnover for the fund. We think that the departure of Le Cornu is a big loss as he has been a crucial part of the fund’s past success given his involvement in building the team and forming the investment process, both invest in health care, industrials and information technology sector”.

                                Bottom five funds vs MSCI AC Asia ex-Japan and category average

                    Best and worst performing Asia-Pacific ex-Japan equity funds