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Top Asia fund targets domestic growth

jnelson@globeandmail.com

What are we looking for?

The top performing Asia-Pacific equity funds over the last three years. These funds try to offer investors a way to participate in Asia's swiftly growing markets. Pockets of Southeast Asia have been booming in recent years, and more recently Japanese equities have been bouncing around as the government seeks to put an end to nearly 20 years of deflation.

The screen

We ranked Asia-Pacific equity funds by performance for the three years to May 31 and included the best performers in the chart. U.S. dollar, segregated and duplicate versions of the funds were excluded.

Funds in the Asia-Pacific category invest 90 per cent or more of their holdings in securities within at least two of the countries in the Asia-Pacific region, but this category excludes any funds that would be found in other Asian fund groups, namely the Asia-Pacific ex-Japan, Greater China or Japanese Equity.

What did we find?

Macro trends such as the rise of the middle class, young populations and increased productivity have driven growth for investors over the past few years.

The BMO Asian Growth & Income adviser fund rode those highs, with gains of 10.7 per cent in the three-year period. The next closest funds were CIBC's Asia Pacific Index and TD's Pacific Rim-I funds with increases of 7.3 per cent and 7.2 per cent, respectively.

While many Asian benchmarks are concentrated on companies that are geared more to meet Western demands, the BMO fund's managers are looking to invest in companies that cater to the rising demand for goods and services within Asia itself.

"It's about finding the big driver of growth in Asia," said Kenneth Lowe, a co-manager of the fund who works for Matthews International Capital Management LLC. "And then we need to look beyond that, and say how do we monetize that as minority shareholders? Because GDP growth isn't enough to get you good returns."

The fund is less focused on companies in cyclical sectors such as financials, energy and materials - those are Asia's past, Mr. Lowe said. The future of the region is in domestically focused companies - telecommunications, industrial companies that produce goods for domestic needs, insurance and health care.

But there are a few headwinds investors should be aware of. For one, the near-term volatility in Japan can influence the reactions of the market. And in the last few months, the good quality companies with sustainable earnings and dividend yields that would usually attract Mr. Lowe have become a little more expensive. As some money comes out of those names, it has influenced performance.

*****

ASIA PACIFIC EQUITY FUNDS 3 YEARS TO MAY 31

Assets *to May 31/13Calendar year returns
FundMER(in $ mil.)3 years1 year5 years10 years20122011201020092008
BMO Asian Growth & Income - Advisor2.85443.510.69%24.48%5.39%21.94%-10.13%12.48%27.02%-24.53%
CIBC Asia Pacific Index1.2717.97.34%17.80%0.24%6.03%14.04%-11.95%10.61%10.32%-22.89%
TD Pacific Rim-I2.6126.37.21%18.18%-1.25%4.92%14.17%-10.89%8.83%7.74%-32.29%
Fidelity AsiaStar B2.4146.47.07%22.73%1.62%15.21%-25.10%18.79%15.54%-18.37%
Invesco Indo-Pacific2.9831.46.89%26.17%2.90%7.26%13.95%-17.64%9.47%29.31%-26.07%
Altamira Asia Pacific2.5032.76.64%20.29%-0.16%5.37%8.47%-12.75%8.57%9.80%-20.62%
CI Pacific2.4540.06.28%20.66%-1.14%6.27%9.60%-15.01%10.51%0.42%-24.22%
Dynamic Far East Value2.56170.36.22%24.63%4.80%9.13%17.53%-22.69%24.71%65.04%-43.95%
CIBC Asia Pacific3.0431.75.23%20.75%1.56%5.40%13.30%-17.36%4.99%18.77%-26.32%
Scotia Pacific Rim2.6820.64.05%18.95%-3.30%4.39%17.02%-23.76%8.36%17.36%-35.57%
Investors Pan Asian Growth-A2.72316.83.34%14.00%-2.73%9.51%-18.98%12.31%17.68%-32.40%
RBC Asian Equity2.251,131.42.70%18.45%-4.35%3.21%10.61%-19.02%2.73%12.00%-32.85%
Renaissance Asian3.353.70.47%20.53%-3.78%4.25%9.60%-23.17%-1.90%42.05%-43.33%
MSCI Japan ($ Cdn)4.68%24.09%-3.02%2.24%5.96%-12.06%9.56%-9.65%-11.33%
Nikkei 225 Total Return Index ($ Cdn)7.79%25.64%0.90%3.87%6.98%-10.71%5.51%-1.56%-10.79%
MSCI Far East ex Japan ($ Cdn)6.72%16.09%0.80%8.11%9.49%-12.51%10.50%-4.25%-15.30%
* Assets are as of April 30, 2013. Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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