Asia's top fund houses by asset class, explained part 1

AsianInvestor explains how the judging panel selected the winners for nine asset class awards.
Asia's top fund houses by asset class, explained part 1

AsianInvestor’s industry-leading Asset Management Awards are widely tracked by asset managers and asset service providers with a presence in Asia Pacific.

While the awards process has evolved through the years, the awards remain laser-focused on picking the brightest and best stars in the region's asset management industry.

Our judging panel, comprising independent industry veterans and top executives from asset owners across the region, assessed all qualified entries and took the lead in providing valuable insights and guidance on shortlisting the best candidates.

The final entries were assessed by the editorial team to eventually decide on the ultimate winners.

Today, we explain the rationale behind the selection of winners of the asset class awards. We showcase the winners for nine categories.

Asian Fixed Income, US Dollar
Pinebridge Investments | Pinebridge Asia Pacific Investment Grade Bond Fund

Despite the tricky market conditions of 2023, Pinebridge Asia Pacific Investment Grade Bond Fund demonstrated resilience through solid research, credit selection, and a time-tested investment approach.

“It showed a consistent net performance,” judges said of this entry. “It outperformed the benchmark in 2023.”

Assets under management (AUM) for the fund increased from $316.7 million to $371.1 million, reflecting investor confidence in PineBridge's capabilities.

The fund responded to disappointing data from China and the problems in its property segment by progressively reducing allocations with China exposure.

This led to a significant underweight position compared to the benchmark. At one point, the fund’s allocation dropped to 20% underweight on China.

Strong credit selection also contributed to performance.

“We saw credit spread tightening in some of our idiosyncratic calls from issuers in Korea, Japan, Australia and Indonesia which benefitted the fund’s performance,” Pinebridge says.

Similarly with interest rates, PineBridge correctly assessed the outlook on US interest rates.

Believing that slowing economic data and lower inflationary trends would compel the US Federal Reserve to start cutting rates in 2024, the fund strategically positioned itself with an overweight in Q3 of 2023.

 “In this way, we capitalised on this rates movement to our advantage”.

Asian Fixed Income, Local Currency
AM Invest | Asian Fixed Income, Local Currency Strategy

AM Invest won in this category through a mixture of innovation and nimbleness which saw it deftly anticipate some of the key events of 2023.

With Bank Negara Malaysia (BNM) making its final rate hike to 3.00%, the Malaysian bond market rallied.

However, the joy was short-lived as the bond yields in developed markets continued to steepen due to the strong economic data and the greater supply of long-duration Treasury bonds.

Stronger growth in the US meant that the Malaysian bond market started to give back some of its gains.

AM Invest consequently reduced its fixed income portfolio duration which turned out to be favourable.

“In the current market conditions which are highly data dependent, we are keeping the portfolio nimble enough to quickly switch positions, especially with escalating geo-political events,” AM Invest says.

Judges were impressed at this turn of speed and also at the fund’s ability to adjust quickly to a changing client landscape.

“They run the first bond ETF in that market and given what’s happening in the fixed income space, they’re providing a lot of access,” the judging panel noted.

 “If you want to think about inclusion and access outside those institutional managers with big fees, their ETF is actually a public offer retail fund at ETF-type fees.”

Chinese Domestic Fixed Income: abrdn | abrdn SICAV I - China Onshore Bond Fund

Holding contrarian views on the Chinese economy in the face of underperformance in 2022 finally paid off for abrdn in 2023, as the fund stood firm against the market to outperform by the second half of the year.

“They had the right macro call throughout the year and had a quite active duration management strategy that guided them to a successful outcome in Q2 and Q3,” judges said of this submission.

While the market was expecting China to enjoy the post-COVID-19 boom they saw in the US and other countries, the outcome of abrdn research was telling it otherwise.

“We were only confident in the services industry but remained extremely bearish on the property sector and overall retail sales growth and we were expecting interest rate cuts,” says abrdn.

“The market moved against us for three months before we saw the Chinese bond market stabilising in February and rallying in March and April 2023 when data prints disappointed the market.”

Abrdn held onto its long duration strategy throughout the first half of 2023, adding high grade credit with generous carry when market was betting on GDP growth to surprise on the upside.

However, this did not materialise.

In August, post a significant rally seen across 1H2023, the fund felt the market had priced in too many rate cuts and there might be a larger than expected fiscal stimulus. This turned out to be the right call and abrdn saw better buying opportunities in September and October.

“We stuck to a long duration bias across 2023 as we took the view that the property market in China would be unlikely to see a stimulus big enough for a material turnaround,” abrdn says. “This was not a consensus view at all times in 2023.”

Emerging Market Debt
PIMCO | PIMCO GIS Emerging Local Bond Fund

Emerging market debt is the kind of category that favours the bigger managers and where smaller outfits simply do not have the research heft effectively to compete.

“With what’s going on in Russia and China now, EMD is a very complex asset class,” one of our judges noted. “It’s a really complicated benchmark and a very complicated investment universe. It’s not a boutique category - in EMD you need an army.”

PIMCO - as one of the largest fixed-income investment managers in the world – has exactly that: military grade research resources at its disposal that can crunch difficult data on complex markets.

The results over the eligibility period were strong.

The fund returned 16.95% before fees (15.91% after fees) in 2023, outperforming the benchmark return of 12.70%. This represented alpha generation of 425 basis points (bps) before fees or 321 bps after fees.

The fund saw $598.6 million in net inflows in 2023, bringing assets under management (AUM) to $2.88 billion. This was an excellent achievement considering EM local bond funds saw $9 billion of EM bond net outflows globally in 2023, according to JP Morgan data.

The fund’s Sharpe ratio in 2023, meanwhile, was 1.13 before fees and 1.04 after fees, outperforming the benchmark's Sharpe ratio of 0.82 demonstrating superior risk-adjusted returns.

PIMCO aims to break the mould of EMS as about top-down macro-risk investing.

“This is an outdated approach. The EM debt market today is full of idiosyncratic mispricing. We have found these bottom-up trades to have far higher information ratios,” PIMCO says.

High Yield Bond
Barings | Barings Global High Yield Fund

Amid heightened volatility across fixed income markets in 2023, the global high yield bond market displayed extraordinary resilience, ultimately delivering total returns of 13.6%.

Barings shared in the joy: its Global High Yield Bond Fund consistently outperformed its benchmark on a 1-, 3-, 5-, 10-year, and since inception basis, across both total returns and risk-adjusted returns.

 “Barings is a huge fund and in 2023 it outperformed by 80 basis points which is a decent performance when managing a big fund,” judges said of this submission.

Despite the market volatility, the fund enjoyed positive inflows thanks to a conviction driven portfolio with a strong emphasis on relative value.

The fund's assets under management (AUM) increased from $1.75 billion to $2.60 billion in 2023, with net inflows across broader Barings high yield bond strategies amounting to $1 billion.

Notably, Asia contributed significantly to net inflows, accounting for 35% of total net inflows in 2023.

Barings believes there is no shortcut to investing in high yield credit, and so employs a research-intensive investment process focused on rigorous fundamental credit analysis.

“We employ a global team of dedicated high yield research analysts that are sector specialists covering the entire debt structure of high yield issuers,” Barings says. “They cover on average 35-45 credits, enabling them to undertake rigorous due diligence.”

Barings' performance in this high yield bond asset class reflected a robust investment process, disciplined risk management, and a client-centric approach, positioning the firm as a trusted partner for a diverse range of investors.

Hong Kong Dollar Bond
Hang Seng Investment | Hang Seng Hong Kong Bond Fund

Since its inception in 2000, the Hang Seng Hong Kong Bond Fund has consistently delivered stable total returns, earning recognition as a leader in the fixed-income space.

During periods of market volatility, such as the Chinese property sector crisis, the fund's investment strategy remained resilient and proactive.

By divesting from problematic Chinese developers while maintaining positions in quality Hong Kong property names with solid financial positions, the team effectively mitigated potential default risks and preserved investor capital.

Additionally, with the bond market enjoying a strong rally led by a recently bullish flattened US dollar yield curve, and less hawkish comments from central banks, the fund's focus on alpha opportunities from credit selections was a key driver of outperformance.

This enabled it to navigate challenging market conditions and seize opportunities for growth.

Figures were strong. With net inflows over the eligibility period of HK$641.9 million ($81.9 million), its return on investment has been a solid 152.50% over the lifetime of the fund, and 7.49% during the eligibility period.

Asia Ex-Japan Equity
Eastspring | Eastspring Asian Low Volatility Equity Strategy

Eastspring has continued to incorporate a global perspective but with a bottom-up focus on Asia and in 2023 this strategic positioning showed solid results.

Assets under management (AUM) at the end of 2023 totalled $262 million for an annual growth of 6%.

“A true global EM fund and where they outperformed they’d done a solid job,” judges said of Eastspring. “AI is the way forward and AI in volatile markets does better.”

The 'Magnificent 7' stocks - a group of high-performing US stocks comprising Microsoft, Amazon, Meta, Apple, Google parent Alphabet, Nvidia, and Tesla - had an exciting 2023.

For Eastspring, this meant extreme market concentration in market capitalisation indices, presenting investment managers with a significant challenge in creating truly diversified portfolios.

“Unlike many systematic investors who employ a one-size-fits-all approach, our quantitative strategy (QS) team tailors their strategies to the specific needs and goals of each portfolio,” Eastspring says.

“Systematic/quant strategies, utilising mathematical models backed by extensive academic studies and Eastspring’s proprietary research, are demonstrating a strong performance trend in Asia.”

As Eastspring likes to remind its clients, the stock market is a marathon, not a race.

“We believe that low volatility strategies can efficiently prioritise stability and loss avoidance, thus providing a steadier path towards financial goals even amidst market fluctuations.”

China A-Shares
BNP Paribas Asset Management | BNP Paribas China A-shares fund

Knowing the China A-share market is essential if you’re to play this volatile, but often rewarding, segment.

BNP Paribas had all the clout needed to make it a successful 2023 on China A-share market despite tough operating conditions.

“A big difference of investing in China A-shares market versus the developed equity markets is that retail investors represent a bigger part of the total market cap and daily trading volumes in China, thus leading to a more volatile market style,” BNP said in its submission.

“We believe that our expertise as professional investor and our bottom-up and long-term investment style are solid enough to deliver success in different market scenarios as well as mitigate unnecessary risks.

“Even during periods in which value style prevails over growth style and when our growth-tilted fund underperforms, the magnitude of the fund’s relative underperformance remains controlled and small.”

Judges concurred with this assessment, saying it was a stand-out winner in this category.

Despite the defensive backwash from an A-share rally early in 2023, BNP Paribas China A-shares managed to deliver a performance in line with the referenced benchmark MSCI China A Onshore Index to strongly outperform a number of its multi-billion peers.

Over the long-term, BNP Paribas Asset Management believes China’s structural reforms will bear fruit as its economy moves up the value chain.

“The most exciting aspect of investing in China in the mid- to long-term is the upgrade in the industrial value chain,” BNP Paribas says.

“Once the macroeconomic environment stabilises, structural growth drivers like industry upgrades are expected to recover and be sustained.”

Emerging Market Equity
Virtus Investment Partners | Virtus Emerging Markets Opportunities Strategy

Stock picking emerging markets is difficult at the best of times, but Virtus Investment Partners showed that strong research and effective strategies can turn volatility to investor advantage.

“Given what happened last year, they did a fine job of switching PRC Taiwan and India,” judges said of the Virtus strategy that delivered returns of 18.7% versus the benchmark of 9.83%, resulting in 8.87 percentage points worth of outperformance. 

“Rotating the portfolio this way shows they’ve had the right research.”

The Virtus strategy is built on a behavioural finance investment philosophy, that utilises a risk-aware systematic approach.

In 2023, this strategy outperformed the MSCI Emerging Markets Index by close to 900 basis points, driven mainly by strong stock selection in the top four countries in the index: China, India, Taiwan, and Korea.

“By avoiding participation in a ‘sugar high’ expectation of a V-shape recovery in China at the beginning of the year, the strategy benefitted from keeping our bets on high-quality, lower volatility stocks in China,” Virtus says.

“As a result, China was the best performing country in terms of attribution for the strategy.”

Strong outperformance in 2023 not only came from shying away from stocks with unfounded high hopes, but also from stocks neglected by the market.

Emerging market banks, for example, suffered from “anecdotal fallacy” – a behavioural bias that leads to sweeping conclusions – in the wake of the turmoil in the banking sector that unfolded in March.

“This caused many investors to overlook attractive banking stocks in Poland and Hungary, for instance,” Virtus says. “During the crisis, we were able to invest in Poland-based PKO Bank with rising net interest income and at levels below its book value.”

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