Compared to the US and European markets, the Asia Pacific market is a much better performer this year. With uncertainties obscuring the economic outlook of the US, capital is looking for a better place to invest. Asian countries, which underwent a severe downturn after the financial crisis, have regained their momentum as fundamentals continued to improve. Economies such as Thailand and Malaysia have attracted much foreign capital to their relatively cheap equities over the year. Even the long dispirited Japanese market has also shown some signs of recovery; the endeavor of the Koizumi government to reform the banking sector has been rewarded with a surge of the Nikkei 225 by 24.50% so far this year. In all, Asia equity funds, on average, have beaten their North American or European equity peers over the short- to medium-term by notable margin.
Fidelity Funds – Pacific Fund
Management changes had posed limited impact on the Fidelity Pacific fund.
Dale Nicholls took over the manager role in the third quarter of 2003, after his predecessor June-Yon Kim ran the fund for three quarters. Despite the manager changes, the fund's investment strategy has largely remained the same. With about 60% stake in Japan, investment in the consumer discretionary, financial and information technology sectors continued to constitute 60% of the portfolio. Nicholls has kept the focus of the portfolio in larger companies, which caused it to lag behind the smaller cap-focused rivals in the Asia Equity Aggregate category. Nonetheless, the fund has achieved average performance in the past few years and its position for economic recovery has added nearly 28% year-to-date gain through November 20.
In the past two years, the exposure to South Korea and Australia had helped added some gains while offsetting some weaknesses of the hefty stake in Japan. For example, Samsung Electronics has benefited from the revived demand in semiconductors and telecom equipments, as well as the outsourcing trend in the technology sector to sustain impressive earnings growth; the rise in material prices also boosted earnings for material firm BHP Billiton, which business turnover rose 23% in the third quarter. With the Japanese market gradually recovering and successful corporate restructuring, holdings such as Takeda Chemical Industries, Canon and Nissan Motor have delivered decent returns this year. Revived demand of technological products and services also buoyed the investment in Taiwan, including blue-chip United Microelectronics.
Although Nicolls has trimmed the stake in Australia and added to countries like China and Thailand, the lesser emphasis on emerging Asian countries has been a drag on the fund's performance. While this fund may look boring compared to some of its rivals, its steady approach suit those investors with lower risk tolerance.
JF Pacific Securities
The new management of the JF Pacific Securities fund has resumed the venture into the growth area.
Long-time manager Roger Ellis left the fund in the first quarter this year. Ellis' heavy bet in Japanese technology stocks ended the fund with a whopping gain of 227.5% in 1999. To cope with the dreary market after the bubble burst, he had taken a more diversified approach to focus on larger companies and piled up investment in Australia, where the bank and natural resources holdings contributed to the fund's performance. While continued weaknesses in the Japanese and Hong Kong markets had weighed on the fund, it managed to match up with the performance of its Asia Equity Aggregate peers and maintained a leading position in the category over the long term.
The new managers Piers Literland and Victor Lee began their opportunistic venture into the emerging Asian countries after taking over the manager role, with particular focus on the technology-related candidates in Taiwan. So far in 2003, the fund has gained 23% under the new team. The portfolio continued to keep around 40% stake in Japan, where Canon performed sturdily after successful corporate restructuring. Increasing overseas demand of automobiles also improved business prospects for holdings such as Toyota, Honda and Nissan in Japan, as well as Denway Motors in China.
While the portfolio positioning by the new management has geared towards cyclical plays that typically perform better in economic recovery, the team took a cautious approach to boost total return by companies with steady earnings and to spread assets across more than 90 holdings in the region. In all, this fund deserves a place on the watch list for investors whom are moderately aggressive.
