New Morningstar research has revealed roughly two in three Asia Pacific funds failed to outperform the index over the past five years.
In Morningstar's study of 126 funds benchmarked against the MSCI AC Asia Pacific ex-Japan index, only a third outperformed the index over five years, while half did better over a three year period to 30 November.
Neptune’s new Asia Pacific Opportunities fund manager Shelley Kuhn says she is amazed so many offerings underperformed the benchmark.
However, she is urging advisers to avoid being tempted to switch to less expensive index trackers, saying the benefits of actively managed offerings are still too good to ignore.
“It’s a big universe in Asia and taking an unconstrained approach, like our fund does can allow us to concentrate on our best ideas,” she says. “Unlike an index tracker, if we don’t like something we don’t have to take it on.”
Morningstar fund analyst Ash Kumar says using an index tracker for Asian exposure is a “reasonable way to go”, but warns investors to do thorough research.
“Be careful how you go about fund selection as returns can vary appreciably,” he says.
“While several major indices represent the investible universe in the region - MSCI Asia Pacific ex-Japan, MSCI AC Far East ex-Japan, and FTSE World Asia Pacific ex-Japan to name three prominent ones - there are important differences among them.”
As indexes contain many different characteristics, Kuhn says an actively managed offering can set its own weighting according to preference.
“A good example can be seen in India. We really like it so it takes up about 14% of our portfolio, but its stocks make up just 6% of the universe,” she says. “Taiwan makes up about 12%, but we don’t have to own it.”
Kumar says investors in the region need to keep expectations in check.
“China, India and Australia have all had strong runs over the last few years and it is open to question whether this degree of outperformance can be sustained for very long,” he says.
But Kuhn is upbeat on the region’s prospects, noting an expected slowing in the US will not have a damaging effect.
“There is a lot more inter-regional trade in Asia now. Indonesia is an interesting example as it is a very export driven country but only about 13% goes to the US,” she says.
“Infrastructure spending in this part of the world in the next five years is going to be about $1trn, which is going to have a multiplying effect on the economies involved.
“Asia is going to more and more become a driver for global growth.”
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