AsianInvestor’s top funds, explained (part 1)
Every year, AsianInvestor's editorial team conduct an intensive analysis of the region's leading asset management service providers, fund products and asset managers, to ascertain the top organisations of the previous 12 months.
The winners of these categories must combine a mixture of business performance, growth and progress, measured on both quantitative and qualitative criteria. Below, we detail why we chose this year's winners of the first half of our asset class award categories, which comprise the leading funds across a set of investment concentrations.
These awards were chosen through a combination of quantitative analysis of investment performance and risk-taking across one, three and five years, based on information from Mercer and eVestment, and then qualitative consideration of how teams of fund managers sought to outperform. Part 2 will feature next week.
GLOBAL FIXED INCOME, HEDGED
AXA INVESTMENT MANAGERS
AXA WF GLOBAL SUSTAINABLE AGGREGATE BONDS
AXA Investment Managers’s AXA WF Global Sustainable Aggregate bonds stood out from its global fixed income fund rivals for its strong risk-adjusted returns.
According to Mercer, the fund outperformed the Bloomberg Barclays Global Aggregate hedged index over one, three and five years and was ranked in the top three by its Sharpe ratio over five years. The fund also achieved consistent returns with low volatility, demonstrating a low standard deviation over the same period.
The fund focuses on investing in fixed and floating rate securities in a diversified range of transferable debt securities, those of investment grade corporations and mortgages. With minimal geographical constraints, it can invest anywhere in the world as well as transferable debt securities issued by non-OECD governments, corporations or institutions.
Alexandre Menendez and Visna Nhim have been the managers of the fund since 2004, meaning the fund also enjoys longstanding and well tested leadership.
GLOBAL FIXED INCOME, UNHEDGED
PIMCO
PIMCO GIS INCOME FUND
Pimco’s GIS Income Fund netted the award in the global fixed income, unhedged, category for its outstanding performance and Sharpe ratio last year.
According to eVestment statistics, the fund ranked top for annual investment returns over three and five years while achieving one of the top five by Sharpe ratio among its peers over the same period. It also demonstrated very stable performance, maintaining a low standard deviation with low tracking error over the three-year time frame.
The US fixed income-focused fund manager's vehicle aims to generate high current income as well as long-term capital appreciation while keeping a low risk profile and volatility level. To do this it employs a global multi-sector strategy and utilises both top-down and bottom-up approaches to identify macro trends and to select undervalued securities.
While the fund invests primarily in US Treasury notes, group chief investment officer Daniel Ivascyn and Alfred Murata, portfolio manager of mortgage credit, aim to diversify its returns and risk by also investing in sovereign bonds from other countries. In addition, the fund places some assets into both investment-grade and high yield corporate bonds from both developed and emerging markets.
Ivascyn and Murata are longstanding Pimco investors; the former has been with the Newport Beach, California-based firm since 1998 while the latter joined in 2001.
EMERGING MARKET DEBT
PIMCO
PIMCO EMERGING MARKETS BOND FUND
Pimco’s emerging markets bond fund was clearly the frontrunner in the emerging market debt fund category last year, beating its peers with its consistent overall and risk/reward ratio.
The fund, which is now 22 years old and boasted an impressive $2.2 trillion in total net assets at the end of March, posted one of the highest returns and Sharpe ratio over one and three years, according to Mercer. It was also ranked top three for its information ratio over the same periods.
The fund consists of a portfolio of predominantly US dollar-denominated emerging market sovereign and corporate debt with tactical exposure to off-benchmark local currency denominated instruments. With a value-focused approach, the fund capture opportunities in intermediate-term bonds issued by countries in emerging markets.
As with most fixed income vehicles at Pimco, the fund is overseen by a dedicated team that has on average 15 years of experience apiece: Yacov Arnopolin, Francesc Balcells and Javier Romo currently lead the strategy.
JAPAN FIXED INCOME
MEIJI YASUDA ASSET MANAGEMENT
MYAM JAPANESE BOND OPEN (MONTHLY SETTLEMENT)
For a combination of consistent returns overall and on a risk-adjusted basis, Meiji Yasuda Asset Management's Japanese Bond Open fund earns our Japan fixed income award this year.
According to research from investment consultant Mercer, the fund recorded the highest return and Sharpe ratio over three and five years. It was also ranked top in information ratio with low standard deviation over three years.
The fund adopts a fairly conservative investing strategy, investing chiefly in government bonds, guaranteed debt and corporate bonds that are rated 'A' or above. The investing environment in Japan was not easy last year, with the already miniscule yields being offered by 10-year Japanese Government Bonds being dragged below zero for the first time since 2017 amid plummeting global equities. Nevertheless, the fund managed to eke out returns above the Yen Libor 1-Month benchmark.
The firm’s proprietary model and analysis on credit ratings are used to evaluate underlying debt and the credit market environment, according to the fund’s prospectus. The strategy also adjusts the duration and controls its positioning on the yield curve by taking into account macro market trends and risks diversification.
JAPAN EQUITY
LINDSELL TRAIN
LINDSELL TRAIN JAPANESE EQUITY FUND
Lindsell Train’s Japanese equity fund stood out from the crowd for its mixture of strong and consistent performance.
According to Mercer, the fund was the frontrunner in returns and risk-adjusted returns over 2018 with low standard deviation. Its overall returns and Sharpe ratio also ranked top three when measured over three years.
It was no great year for equities in Japan during 2018, courtesy of a mixture of lingering domestic deflation and limited local economic growth. Nevertheless, Lindsell Train's fund managed to outperform its Topix Tokyo Stock Exchange Index benchmark.
The fund house did so by constructing a portfolio with a focus on businesses with sustainable business models and established brands. This bottom-up approach contributed to the performance of the fund’s holdings, and helped it overcome the negatives of a rather lacklustre macro-economic investment environment, said Lindsell Train.
Another key investment characteristic of the fund is that it concentrates in a limited number of outstanding companies, which reduces the risks of loss in capital value. As a result, the portfolio turnover is usually low.
Michael Lindsell, co-founder of Lindsell Train, leads the management of the Japanese equity portfolios. With 30 years’ experience investment management, he has been heading the strategy since January 2004. No one has left the firm since the firm’s inception in 2000.
ASIA EX-JAPAN EQUITY
FIDELITY INVESTMENTS
FIDELITY FAR EAST FUND
Fidelity Investments’ Far East Fund is our pick as the standout performer for Asia ex-Japan equity investing, thanks to its high Sharpe ratio and stable returns.
The strategy gained the first place in returns on a risk-adjusted basis over five year and was ranked in the top five over both one and three year statistics. It also performed consistently with a low standard deviation over three years, according to Mercer. Compared to the benchmark performance of MSCI AC Asia ex Japan Index, the fund generated a decent range of alpha with high overall returns.
The fund chiefly invests in China with holdings in South Korea and Taiwan and Hong Kong. In terms of sector, its portfolio is spread across industries such as financials, information technology, communication services and consumer discretionary. However it also taps opportunities in Southeast Asia with the support of locally located investment teams, it gives investors the edge of regional diversification.
With a medium to high risk profile, the fund is catered for investors who plan to hold their investments for the long-term, according to the fund factsheet. They can also rely upon the experience of portfolio manager Bruce MacDonald; his 26 years of investment experience has seen him weather several financial cycles.
ASIAN FIXED INCOME, US DOLLAR
NIKKO ASSET MANAGEMENT ASIA
NIKKO AM LUX ASIA CREDIT FUND – CLASS A USD
The Nikko AM Lux Asia Credit Fund from Nikko Asset Management Asia has earned our award in the Asian fixed income, US dollar category. The fund recorded impressive performance by generating total return from capital appreciation and income of investments.
According to Mercer, the fund was ranked top five in Sharpe ratio over five years and has outperformed the Markit iBoxx Asia Dollar Bond Index significantly, standing out from its peers with the highest overall return over one year.
In the eventful year of 2018, the team managed to ride through some rough patches in Asia by constantly reviewing the base case investment thesis and making necessary adjustments. It has also grown its credit research team against the backdrop of a surge in credit instruments available in the market, which makes investment selection increasingly challenging.
The strategy relies on Nikko Asset Management's proprietary internal credit rating model, in which the investment team takes a both a top-down and bottom-up approach to credit research. This has been enhanced by the fund house's local presence in Asia. The fund has been co-led by Jian Wei Loh and Lionel Lee since 2014.
ASIAN FIXED INCOME, LOCAL CURRENCY
MATTHEWS ASIA
MATTHEWS ASIA STRATEGIC INCOME
The Matthews Asia Strategic Income fund stands out from its peers for its ability to provide consistent and long-term performance. That enabled it to earn the award in the Asian fixed income, local currency category.
The strategy was ranked top for its Sharpe ratio over three years and came second over five years, according to Mercer. Its overall return also stood out over five years, and the fund has offered a level of stable performance that was evident from its low standard deviation over one, three and five years, according to the data.
The fund seeks high and risk-adjusted returns through credit, currencies and interest rates using a bottom-up investment approach. The flexibility of the strategy allows the team to invest across different capital structure and currencies.
The turbulent market witnessed through 2018 provided a big challenge for the fund house, but Matthews' investment team responded by taking a long-term investment horizon and closely adhering to it. That meant its managers were willing to sacrifice short-term performance relative to benchmarks.
The Matthews Asia Strategic Income fund is headed by Teresa Kong and co-led by Satya Patel and Wei Zhang. Kong joined the firm in 2010 and has 23 years of experiences, while Patel and Zhang joined in 2011 and 2015. Both have over a decade of investment experience.