Why advisers should pragmatically bypass EM funds
Advisers who have focused on pure emerging market (EM) funds may have been letting their clients down by overlooking the degree to which returns have really been driven by Asia ex-Japan.
It is no secret that many EM funds have been seen to struggle over the past two years, and Premium China Funds executive director, Jonathan Wu argues this points to the need for advisers to become much better acquainted with the reality of how EM funds are made up.
He said that what was being significantly overlooked was the fact that in most supposedly EM funds, more than half of the exposure was actually to Greater China being China, Taiwan and Hong Kong.
“So, our questions to advisers are: ‘Why complicate issues? Why not identify the performance-generators and pursue them? Why not bypass EM and opt for specialist players with boots on the ground in Greater China – in short, an Asia, ex-Japan specialist?’,” Wu said.
He pointed out that non-Asia EM countries comprised about 20% of EM indices but the reality was that there were no countries in that cohort which could be regarded as drivers of the world economy when compared to Asia ex-Japan.
“We are not saying this will always be the case, but right now that is the reality,” Wu said. “Of course, many will ask, what about India? But India only makes up 10.7% of the Asia ex-Japan index (and slightly less in EM). Clearly a country with interesting prospects, but not one that is going to make a material difference to either EM or Asia index returns at the moment.”
To illustrate his point, Wu pointed to the performance of a raft of specialist emerging markets funds over the past decade and noted the degree to which they had fallen well short of the performance of Premium China’s flagship Premium Asia Fund.
He said that while the Premium Asia Funds cumulative returns since inception had reached close to 190%, the best of the EM funds, the Aberdeen Standard Emerging Opportunities Fund had returned just over 100%.
“And we are not entirely comparing apples with pears because of the degree to which the EM index is actually made up of more than 50% Greater China exposure,” Wu said.
“That is why we believe that advisers need to look beyond the EM label to what lies beneath,” he said. “An Asian specialist is a much better portfolio decision. Go straight past EM to Asia ex-Japan.”
ABOUT PREMIUM CHINA FUNDS MANAGEMENT
Premium China Funds Management (PCFM) is a boutique funds management group providing specialist Asian equity and fixed-income funds to both Australian and New Zealand investors.
Capturing the growing economies and influence of emerging Asia, PCFM has developed 4 actively managed funds – the Premium China Fund, Premium Asia Fund, Premium Asia Property Fund and Premium Asia Income Fund.
The funds are managed by a large and experienced team with offices in Hong Kong, Shanghai, Singapore and Kuala Lumpur. The directors and investment managers of Premium and its fund offerings have extensive knowledge in Asian equity and credit markets, wealth management, and other financial services.
For further information, please feel free to contact:
Jonathan Wu – Executive Director | Head of Distribution and Operations | Chief Investment Specialist
0416 031 676
Derek Paas – Asia Investment Specialist | State Manager (NSW/QLD/WA/ACT)
0406 608 388