£105.5m fund is only portfolio in the sector to achieve a positive return over each of the three discrete annual periods to the end of july
In a sector in which Hugh Young and Angus Tulloch dominate, the fund with the lowest beta and one of the highest alphas is not run by either of them.
Tulloch and Young are still among the top performers but the £105.5m Lincoln Far East fund, managed by Delaware International Advisers, is the only portfolio in the Far East ex-Japan sector to have achieved a positive return over each of the three discrete annual periods to the end of July.
In a sector classified as volatile by most investors, the Delaware-managed fund achieved a beta of 0.79, the lowest of the 66 funds in the sector over the three-year period.
More than 50% of managers in the sector posted a negative alpha. The Lincoln Far East portfolio, however, scored the second highest at 10.82. The highest, 10.93, was achieved by Exeter's Pacific Growth fund, although it posted a beta of 1.14.
Over the three years to the end of July, the Lincoln Far East fund returned 18.27%, significantly outperforming the sector average of -17.53% for the period, according to S&P figures.
In the 12 months to the end of July 2003, the portfolio delivered a return of 14.93% against the sector average of 6.26% but the highest return of was achieved by Gartmore's China Opportunities fund with 28.09%. The Gartmore fund has an annualised alpha of 2.51 against a mean of 0.34 and also features a below-average beta of 0.86.
Vincent Rennie, head of investment at Lincoln, said the manner in which the Far East fund is run by Delaware is highly disciplined and has been key to the vehicle's performance. He noted the fund managers at Delaware do not follow market trends or position the fund to take advantage of brief market rallies at the expense of what they see as good value.
The portfolio is quite focused, with around 50-60 stocks, which it typically holds for three to five years. Rennie believes the fund will outperform over the long term because its managers stick to their guns in terms of their investment decisions.
Elizabeth Desmond, head of the Asia Pacific team at Delaware International, was shortlisted for the 2003 Investment Week Fund Manager of the Year Awards for her management of the portfolio.
She believes part of the fund's success can be attributed to constant monitoring of securities against her own valuation of what they are worth in the long term. She said: 'This value-based strategy, combined with our own research and direct contact with the companies in which we invest, has consistently proved successful.'
Desmond attributes the fund's low-risk profile to the value-led approach in stock selection. 'Over the long term, this approach has allowed us to capture the essence of strong market performance and yet gives us a defensive fall-back position when the market turns down,' she noted.
Over the three years to the end of July, only four vehicles in the sector achieved a positive performance and among these was First State's £546.7m Asia Pacific portfolio, delivering 14.79%.
Tulloch, who manages the fund, won the award for the best Far East fund manager at this year's Investment Week Fund Manager of the Year Awards.
Aberdeen's £281.4m Far East Emerging Economies fund, which is also run by Young, was another positive performer over the period with a return of 7.47%, as was Exeter's £12.4m Pacific Growth fund, which delivered 8.06%.
After two years of predominantly negative returns, the sector has turned itself on its head, with the majority of portfolios now achieving positive returns. In the 12 months to end of July 2002, only 10 vehicles achieved a positive performance and the average return over the period was -4.33%.
In the following year, only seven vehicles delivered a negative return and the mean performance for the 12 months to the end of July 2003 had substantially improved to 6.26%.
Gary Potter, director of multi-manager and fund of funds at Credit Suisse Asset Management, believes a number of factors have contributed to the turnaround in the sector's fortunes. He noted three main drivers: outsourcing, China and a general global recovery.
Asia had become over-extended and this led to the Asian crisis of 1997/1998, he noted. But since then, the process of regeneration has caused companies and earnings to improve dramatically.
'As the focus of the western world was to get inflation under control, this has driven companies to outsource to Asia,' Potter said. 'They see it as a much-improved place with which to do business. Such companies are finding themselves much better placed to boost investor sentiment due to earnings and better corporate governance.
The poorest performer in the sector over the three years to the end of July is the Credit Suisse Orient fund, with a return of -36.15%. The portfolio posted a sector low alpha of -6.69 and an above average beta of 1.09.
Peter Sartori, who took over management of the fund in mid-2002, has recently increased his exposure to both Hong Kong and Taiwan.
He said: 'These two markets, in particular Hong Kong, have been long-term underweights for the fund and the fact we are now able to find attractive stocks highlights the improvement in fundamentals in both markets.
'Exposure to Thailand and China has been reduced. Both markets have been long-term overweights and our selling has been a product of profit taking, with many of our holdings becoming excessively valued.'
Samsung Electronics remains the CS Orient fund's largest holding. Elsewhere within technology, the fund holds large positions in Taiwanese semi-conductor stocks such as TSMC.
Henderson Global Investor's £159.9m Pacific Capital Growth fund has been managed by John Crawford for the past three years and returned -22.12% in the three years to the end of July against the sector average of -17.53%.
Simon Ellis, head of UK retail at Henderson, said Asia is in effect a geared play on the US economy and makes money through growth-oriented momentum. But when the economy drops, it is necessary to be able to move into a defensive position.
Over the 12 months to the end of July 2001, the fund delivered a return of -24.65%, underperforming the sector average of -18.91%.
Ellis said the portfolio was hit hard by the downturn in technology but in line with the rest of its peers, its returns improved over the following two years.
In the year to the end of July 2002, it achieved a return of -6.12%, still below the sector average of -4.33%.
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