Revealing the reasons behind Asia’s top funds, 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, on both quantitative and qualitative criteria. Below, we detail why we chose the first half of this year's winners of our asset class awards category, or the best performing funds.
ASIA FIXED INCOME (HARD CURRENCY)
Ashmore
Emerging Markets Asian Corporate Debt
UK firm Ashmore’s Emerging Markets Asian Corporate Debt fund recorded impressive performance by various key measures as of end-2017, and did so by participating in some relatively niche investments.
It produced the highest returns in the dollar-denominated Asian bond category over three and five years, while posting top-five information ratios over one, three and five years and ranking third by Sharpe ratio over five years, according to Mercer.
The fund invests purely in Asian corporate bonds, using bottom-up credit selection and top-down country selection, and focusing on liquidity management. It aims to outperform the JP Morgan Corporate Emerging Markets Bond Index Broad Diversified benchmark.
The management team has been happy to buy into less popular deals, such as the issuance by Vietnamese conglomerate Vingroup in 2013 and the credit restructuring of Mongolian Mining in 2017. The Vingroup investment in particular was a major contributor to the positive performance of the fund, said Ashmore.
Singapore-based Kon Chee Keat and Chua Ching Ching run the strategy, with oversight from Ashmore’s six-person investment committee, led by chief executive Mark Coombs.
ASIA FIXED INCOME (LOCAL CURRENCY)
Matthews Asia
Asia Strategic Income
Matthews Asia’s Asia Strategic Income fund stood head and shoulders above its rivals in the local Asia bond category for the consistent strength of its performance, which it achieved with the help of some canny currency allocations.
According to Mercer, the product recorded the highest returns in this category over three and five years; ranked top by Sharpe ratio over one and five years; and came first by information ratio over five years and second over three years.
The fund has sought out securities with potential asymmetric upside and downside risks across credit, interest rates and currencies. It uses the Markit iBoxx Asian Local Bond Index as its benchmark.
Much of the strategy’s performance gains since inception can be attributed to overweights to Indian rupee, Indonesian rupiah and dollar-denominated bonds, said Matthews Asia. As of March 31, 2018, 52.7% of the fund’s allocation was in local-currency bonds.
San Francisco-based Teresa Kong and Satya Patel lead the portfolio management team. Both have been on the fixed income team since the inception of the fund in 2013.
ASIA EX-JAPAN EQUITY
Hermes Investment Management
Asia ex Japan Equity
Hermes Investment Management scooped the Asia ex Japan Equity fund award this year for its outstanding long-term performance, trumping all rivals in the category by most key measures.
The UK firm’s Asia ex-Japan equity product ranked top over five years in terms of overall return, Sharpe ratio and information ratio, according to Evestment and Mercer—except in one area: it came second by information ratio over the period, according to Mercer.
The fund invests primarily in equity and equity-related securities issued by companies in or deriving substantial revenues from emerging markets in Asia ex Japan. Its investment philosophy prioritises limiting downside over picking stocks with upside potential, focusing on securities with an asymmetric risk-return profile.
This approach has a higher possibility of underperforming in the short term, said Hermes, but it helps locate opportunities that others might avoid and that are therefore mispriced. By taking a long-term perspective, the strategy is able to tolerate more short-term volatility and benchmark risk, added the firm.
London-based Jonathan Pines is the lead manager, who is supported by deputy portfolio manager Sandy Pei, investment analyst Maggie Sun and equity specialist James Cook.
CHINA A-SHARES EQUITY
Green Court Capital Management
China A-Share Equity
Green Court Capital Management’s China A-Share Equity Strategy stood out for its consistently strong results across the board, according to Mercer.
It posted the best five-year performance in the category and second best returns over one and three years. By Sharpe ratio it came top over one and five years and second over three years, while also recording the best information ratio over five years (and third best over one and three years).
The fund focuses on gaining absolute returns over a full market cycle, prioritising companies with strong corporate governance, sustainable top-line revenue, bottom-line earnings growth and recurring operating cash flow from core business activities, said Hong Kong-based Green Court.
Frank Yao and Tang Lihui have managed the fund since its inception in September 2012. They had previously worked for US fund house Neuberger Berman but left last year to form Green Court Capital. They still run Neuberger Berman’s China Equity Fund.
CHINA OFFSHORE/CNH BONDS
Income Partners
Managed Volatility High Yield Bond fund
Income Partners’ Managed Volatility High Yield Bond fund was the standout performer in the China offshore bonds category across almost all periods and measures.
It produced the highest returns over one, three and five years, and the highest Sharpe ratios and information ratios over three and five years, according to Mercer. It only fell short of a clean sweep across all three measures by ranking second by both information and Sharpe ratio over one year.
The management team seeks to maximise risk-adjusted returns over a full economic cycle, with a particular emphasis on volatility management, said Hong Kong-based Income Partners. Its investment approach aims to identify high-yield products that generate consistent high-yield returns with a controlled level of volatility.
As a result, said the firm, the fund has tended to achieve market-level returns at times of bullish sentiment, but has generally experienced less drawdown than its rivals when investors have turned bearish.
The strategy’s lead managers are co-chief investment officer Raymond Gui and senior portfolio manager James Hu. Income Partners said there has been no turnover in the investment team since the fund’s inception in July 2011.
CHINA DOMESTIC FIXED INCOME
Manulife Asset Management
CNY bond fund
Manulife Asset Management’s CNY bond fund won the China domestic fixed income category this year on the strength of its impressive risk-adjusted returns.
According to Mercer, the fund recorded the highest Sharpe ratios over one, three and five years and the highest information ratio over one and three years. It also ranked third by information ratio over five years.
The team invests in high-quality bonds issued by government agencies, supranationals and corporates. The strategy leverages three sources of returns: interest rates, credit and currency. Of these three, alpha generated from corporate credits is increasingly important, Manulife Asset Management said.
Manulife attributes the success of the fund to its on-the-ground proprietary research, which comprises a team of 20 credit analysts located across Asia, including eight dedicated to China-related fixed income.
Hong Kong-based Paula Chan and Eric Liu lead-manage the fund, supported by a broader Asian fixed income team.
EMERGING MARKET EQUITY
Hermes Investment Management
Global Emerging Markets fund
Hermes Investment Management scooped this award for the consistently strong absolute and risk-adjusted performance of its Global Emerging Markets fund. The UK manager was one of only two firms to win two prizes in the asset class awards section.
According to Evestment, the strategy ranked in the top five by overall returns over one, three and five years; in the top four by Sharpe ratio over the same time periods; and second by information ratio over five years.
Hermes launched the fund in December 2008, with an aim to achieve an excess return over rolling three-year periods against the MSCI Emerging Markets Net Index.
The investment approach combines top-down analysis with bottom-up fundamental stock selection, alongside environmental, social and governance analysis. Hermes said monitoring ESG factors was essential when evaluating companies in emerging markets.
The firm typically expects stock selection to contribute about two-thirds of alpha, with the remaining third coming from country allocation.
Gary Greenberg has been lead portfolio manager since July 2011, and he is supported by the five-member global emerging markets team.
EMERGING MARKET DEBT
PGIM
Emerging Markets Debt fund
PGIM’s Emerging Markets Debt fund claimed this award thanks to its outstanding risk-adjusted performance. It ranked first in its category by information ratio over three and five years, according to both Evestment and Mercer.
In addition, over three and five years the strategy posted the third highest overall returns in its category and ranked in the top five by Sharpe ratio over the same period, according to Mercer.
The fund invests chiefly in EM hard currency sovereign debt, with allocations to EM corporate bonds, local rates and FX. It seeks to provide an annualised gross excess return of 250 basis points over the JP Morgan Emerging Markets Global Diversified Bond Index over a market cycle.
Internal relative-value models are used to evaluate countries, sectors, industries, and issuers relative to each other and to developed market debt, said PGIM, the asset management arm of US life insurer Prudential Financial.
David Bessey and Cathy Hepworth, co-heads of the EM debt team, have led the fund’s management since its inception in 1996. They are supported by a 29-member team with an average of 15 years with the firm and 18 years of investment experience overall.
Look out for the second part of our asset class award winners soon.
This content originally featured in AsianInvestor's April/May 2018 magazine edition.