Despite the potential for a US interest rate hike later this year, mild inflation in Asia has given support to Asian central banks to ease their monetary policies.
Reduced interest costs, combined with continued low commodity prices, should gradually translate into better corporate earnings growth.
Currency depreciation for many Asian economies have also helped to protect their competitiveness and reduce pressure on earnings despite weak global trade.
In addition, Asian governments’ strong dedication to structural improvements should benefit the regional economies in the long run.
But there are strong headwinds. In particular, dilution of shareholder returns and multi-year declining profitability of Asian companies present structural challenges to investors in Asian equity markets.
In this context, Fund Selector Asia compares two Asian equity funds – the Amundi Asia ex-Japan Fund and the MFS Meridian Asia Pacific ex-Japan Fund.
London-based Ruzhen Li, head of research at Enhance Group, provides a comparative analysis.
Li said the Amundi fund takes a fundamental approach, but with a comparatively more active style. The manager has support from a 24-person research team.
“The team is organised by region, and research ideas follow a framework of valuation, sentiment and quality. Each analyst builds model portfolios independently, and the top high conviction ideas of each analyst will be considered for the fund, subject to frequent internal discussion and debate.
“Around 200 stocks are covered by the team and the turnover is around 200%, reflecting on its active trading style with a holding period of three-to-six months.”
By comparison, the MFS Meridian fund takes a bottom-up fundamental research approach and focuses on long-term investing.
“The team actively covers 200 to 300 stocks in the region and the portfolio usually holds 55 to 75 positions and remains fully invested. The portfolio has a focus on quality and liquidity and is biased toward large caps, although a top-down country macro view is also considered for risk control purposes,” she said.
The portfolio turnover is around 38%, reflecting a relatively long-term holding period, she added.
As of 30 April, on a net fees basis, the Amundi fund underperformed its benchmark MSCI Asia ex-Japan across different periods; over the five-year period (-14.60% vs -4.59%), the past three years (-4.90% vs -2.28%), the one-year period (-17.44% vs -18.54%), and year-to-date for 2016 (-0.03% vs 0.86%), according to data from Li.
The MFS fund underperformed its benchmark MSCI Asia Pacific ex Japan over the five-year period (-8.39% vs -4.87%), but outperformed over the three-year period (-5.84% vs -6.19%), and outperformed over the one-year period (-13.13% vs -16.53%), as well as year-to-date for 2016 (1.86% vs 1.82%).
“The Amundi fund performance has improved during the more recent period. The difference between these two funds is partially a result of the slight difference between their benchmarks.
“More specifically, the MFS benchmark universe includes Australia, whilst Amundi’s benchmark doesn’t, and partially because the two fund positions are taken based on different principles. The MFS fund takes positions primarily on a sectoral basis, whereas the Amundi fund takes positions primarily on a regional basis,” Li said.
The funds are differentiated by sector weightings
|Telecom, Media & Technology||41.77||Financials||33.80|
|Financials||25.49||Telecom, Media & Technology||26.10|
|Basic Materials||4.87||Basic Materials||8.40|
|Utilities||0.58||Cash & Cash Equivalents||1.20|
Source: FE Analytics; firms’ factsheet
Performance over the past three years
Source: FE Analytics