On an annualised three-year basis the fund has outperformed the category average by 5.7 percentage points and the index by 5.5 percentage points. Investing in Asian shares tends to be riskier than investing closer to home but on a relative basis this fund’s risk profile is much lower than its peers. Its three year standard deviation is 13.30 compared with a category average of 19.27.
Elizabeth Desmond, who has managed the fund since the summer of 1998, uses a value-based investment approach. Within the Pacific equities team each member has responsibilities for certain countries and sectors. The investment process is a combination of 60% bottom-up stockpicking and 40% country allocation. For example, if their modelling shows that Indonesia has the highest expected returns they can
ask the analysts to look closely at the country for opportunities or if they are coming up with a number of ideas for Japan but the market’s forecasted real return is low they can question which ideas are most appropriate.
The team views its benchmark index – the MSCI AC Asia Pacific Free ex Japan – as its opportunity set but only tends to hold about 50-70 companies in the portfolio. Ms Desmond is also happy to not hold anything in a market if they cannot find any attractive opportunities.
With its current 61 holdings the portfolio is more focused than the category average but Ms Desmond generally holds only 2-3% in any one company.
The fund’s value bias means it is likely to underperform its peers during growth-oriented rallies such as 1999 when the fund was up 36% but still underperformed its peers by almost 39 percentage points. However, from 2000-2002 the fund outperformed its peers and the index significantly each year. So far this year the fund is up over 12% and is almost ten percentage points ahead of the category average.
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