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Samsung’s bulk limits index-beating funds

Due to the dominance of Korean stock indices by one company, Samsung Electronics, outperforming them is difficult when Samsung does well. Some managers did well despite it.

No actively-managed fund has matched the cumulative performance of the MSCI Korea Index, in dollar terms, in the past three-year period ending 8 June.

The performance of ETFs that follow the index beat actively-managed funds and were driven mostly by a single stock — Samsung Electronics — which had price growth of 85% over the three-year period.

Samsung now constitutes 32% of the MSCI Korea Index and while passive ETFs can hold a proportional share of it in their portfolios, actively-managed funds have concentration limits, usually 10% in a single stock.

JP Morgan’s Hong Kong-domiciled Korea Fund and its Luxembourg-domiciled Sicav product the JP Morgan Korea Equity Fund, had the best relative performance among actively-managed peer funds.

The two JPM funds posted returns of 42.4% and 40.4%, respectively, while the index returned 47.5% during the three-year period.

Both funds are managed by John Cho and Ayaz Ebrahim, through the firm’s emerging markets and Asia-Pacific equities team in Hong Kong.

Neither fund outmatched the top passive vehicles, such as the Xtrackers MSCI Korea Ucits ETF, the Lyxor Ucits ETF MSCI korea and the iShares MSCI korea Ucits ETF, on the three-year basis.

Looking at the past 12-months, however, the best performing actively-managed Korea equity funds, both JP Morgan products and the Barings Korea Trust, have managed to outperform the broad Korea equity index, and the ETFs tracking it.

Best performing Korea equity funds

Fund 1-yr return 3-yr return
MSCI Korea Index 13.1% 47.5%
Xtrackers MSCI Korea Ucits ETF 13.6% 45.1%
Lyxor Ucits ETF MSCI Korea 13.3% 44%
iShares MSCI Korea Ucits ETF 11.8% 42.9%
JP Morgan Korea Fund 16.9% 42.4%
JP Morgan Korea Equity Fund 15.9% 40.4%
Lion Global Korea Fund 12.6% 35.4%
Amundi Equity Korea Fund 9.8% 18%
Barings Korea Trust 16.5% 16.4%
Schroder ISF Korean Equity Fund 4.3% 13.4%
Mirae Asset Korea Equity Fund 4.5% 6.4%
Data: FE, cumulative returns in US dollars, as of 8 June 2018.

Data shows that during the past three years, a simple focus on factors such as growth or momentum would have boosted the performance of a fund compared to the MSCI Korea Index.

In particular the MSCI Korea Growth Index outperformed the MSCI Korea Index on the three years basis, and the MSCI Korea Momentum Index did better that growth and the broad index during the past year.

The JP Morgan fund, however, has managed to deliver returns while adopting a value approach, according to analysis by Morningstar, although Cho, the manager, tends to be flexible in his approach.

Part of the Mark Allen Group.