HEAD-TO-HEAD: Stewart Investors versus Templeton

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Performance

The Stewart fund’s performance has struggled in recent years because of its underweight exposure to China in general, and to Asia’s large, tech growth stocks. The consequences were especially severe last year during the strong recovery in the sector in April.

“The fund has had a rough time in the last couple of years,” said Daniels.

It has posted a three-year negative cumulative return of -12%, according to FE Fundinfo, well below the 23.4% return by the MSCI Emerging Markets Index and also the average 16.1% by funds in the sector available to Hong Kong retail investors.

The fund’s somewhat contrarian allocation has also caused it to underperform longer-term, generating a 36.5% return over five years, compared with 121.2% by the index. On the other hand, it held up relatively well during the bear market in 2018, falling 12.9% compared with a 14.6% drop by the index 15.8% decline by its peers, according to Fe Fundinfo.

Also on the plus side, the volatility of the fund over three years of 16.4%, is well below the volatility of the index (19.77%) and the sector average (18.5%), FE Fundinfo data shows.

“Nevertheless, the strategy has faced the huge headwinds of being underweight China and the tech growth stocks and having a tilt towards mid- and small-caps,” said Daniels.

“It should have performed better during down markets, but was hurt by exposure to Latin America, especially Mexico where it suffered foreign exchange losses,” he said.

Allocation rather than stock selection was the main reason for the underperformance last year, according to Daniels.

“However, Prew and his team are committed to their process and strategy, and we remain convinced that they will eventually succeed,” said Daniels.

“While the vehicle has significant ground to make up, it possesses the tools to do so,” he said.

The strategy and composition of the Templeton fund are much more orthodox, so its performance tends to match its benchmark.

“The fund has large exposure to index stocks and hence returns don’t deviate too far from the index,” said Daniels.

It has posted a three-year cumulative return of 26.2%, outperforming its sector average and a few percentage points higher than the MSCI Emerging Markets Index, according to FE Fundinfo.

Over five years, it further outstrips both, with a cumulative return of 136.5%, and significantly more than its peers (98.7%).

However, the fund did less well in 2020, generating just 16.5% compared with 18.3% by its benchmark. The fund also tends to be quite volatile, at 21.6% over three years, which is higher than both the sector average and the index, FE Fundinfo data shows.

“Last year’s underperformance was due to stock selection, particularly in the consumer discretionary sector,” said Daniels.

Discrete annual performance

Source: FE Fundinfo. Annual returns in US dollars.

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