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Asia-Pacific funds rediscover China, Japan

jnelson@globeandmail.com

What are we looking for?

The top-performing Asia-Pacific equity funds over the past year.

The screen

We looked for Asia-Pacific equity funds with the top returns for the year to Oct. 31 and included the best performers in the chart. U.S. dollar, segregated and duplicate versions of the funds were excluded. Funds catering to one professional group or requiring a minimum investment of more than $25,000 were also omitted.

Also, note that funds in this category aren't found in other categories such as Asia-Pacific ex-Japan, Greater China or Japanese Equity.

What did we find?

A rapidly changing landscape leads to a range of returns.

The top performer was the Invesco Indo-Pacific Fund, which posed a gain of 37.6 per cent in the period. Fund performance ranged down to 16.9 per cent for the Renaissance Asian Fund. Compared with other categories, funds focused on Japan and China have performed particularly well in recent months.

Knowing which regions have the most room to run has a big impact on a fund's performance, according to William Lam, one of the Invesco fund's portfolio managers.

"[Price-to-earnings] valuations used to be very different between Japan and the rest of Asia," Mr. Lam said. If the P/E ratio in Japan was about 20-plus times earnings, the rest of Asia was only about 10 times earnings, he said.

In the past two years, as those ratios Japan's levelled off, the fund has shifted from a strong overweight position in the rest of Asia and is tilting toward Japan. Now the weightings are nearly equal, with a slight bias toward Japan, where financial firms have been strong performers in the Invesco fund.

Of course, picking the right stocks is also important, Mr. Lam says, and in the past year, investments in cash-generating Chinese Internet companies have been very profitable for this fund.

"Chinese Internet penetration levels are still much lower than they are in the West," he says, calling it a "clear growth story."

Chinese Internet technology company NetEase Inc., which makes popular games, has performed well in the fund and is still one of the largest holdings.

As the past decade's major investments in China's infrastructure and housing taper off, the fund wants to invest in companies disconnected from those sectors.

"A lot of it is about the mass consumer who has a little more money in their pocket and is choosing to spend it on either buying things online or playing games online, which is about the cheapest thing you can do in China, for leisure," Mr. Lam said.

Mr. Lam is more cautious about investments in companies with a steady yield, but limited growth. These investments have been bid up in the low-interest rate environment, but if interest rates go up, their valuations would fall, and investors could suffer as a result.

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ASIA-PACIFIC EQUITY FUNDS, ONE YEAR TO OCT. 31, 2013

Assetsto Oct. 31calendar year returns
FundMER(in $mil.)1 year3 years5 years10 years2012201120102009
Invesco Indo-Pacific Series A2.9832.737.63%7.30%11.31%5.07%13.95%-17.64%9.47%29.31%
Fidelity AsiaStar B2.4249.125.83%2.39%8.38%15.21%-25.10%18.79%15.54%
RBC Asian Equity2.251202.324.07%2.82%4.07%1.33%10.61%-19.02%2.73%12.00%
Altamira Asia Pacific2.5432.121.26%5.49%6.43%3.12%8.47%-12.75%8.57%9.80%
CI Pacific2.4537.920.64%4.41%5.32%3.84%9.60%-15.01%10.51%0.42%
CIBC Asia Pacific Index A1.2715.620.14%5.90%8.06%4.24%14.04%-11.95%10.61%10.32%
CIBC Asia Pacific A3.0430.618.91%2.52%7.61%3.40%13.30%-17.36%4.99%18.77%
TD Pacific Rim-I2.624.318.67%5.28%7.50%3.04%14.17%-10.89%8.83%7.74%
Scotia Pacific Rim2.6819.818.67%0.05%5.17%1.72%17.02%-23.76%8.36%17.36%
Dynamic Far East Value Series A2.56156.917.41%-0.39%16.65%6.49%17.53%-22.69%24.71%65.04%
Investors Pan Asian Growth-A2.71457.617.41%1.35%6.63%1.62%9.51%-18.98%12.31%17.68%
Renaissance Asian3.353.316.94%-2.55%6.33%1.30%9.60%-23.17%-1.90%42.05%
MSCI Japan ($ Cdn)40.00%9.24%5.45%2.08%5.96%-12.06%9.56%-9.65%
NIKKEI 225 Total Return Index ($ Cdn)36.41%9.42%7.51%1.87%6.98%-10.71%5.51%-1.56%
MSCI Far East ($ Cdn)35.35%8.82%6.80%2.93%9.49%-12.51%10.50%-4.25%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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