Japan is playing a prominent role in the region after decades of economic stagnation. Some fundamental changes are underway. Corporate earnings are growing, even if the economy is sputtering. The recent privatisation of Japan Post could "mark the start of a genuine revolution in Japan’s services sector, and financial services sector in general".
The rest of Asia, however, is muddling along. China is dealing with slowing economic growth while ASEAN equities are considered way too overvalued. Some economies in that sub-region, many believe, are vulnerable to the coming US interest rate hike.
Therefore, Fund Selector Asia takes a look at the "Asia-Pacific including Japan" sector and compares the Allianz Oriental Income Fund and the JP Morgan Pacific Securities Fund.
Luke Ng, senior vice president at FE Advisory, has provided a comparative analysis.
Investment strategy review
The funds have different benchmark indices and investment strategies.
For Allianz, the fund manager, Stuart Winchester, adopts the MSCI AC Asia Pacific Free Total Return (Net) index as the reference benchmark. Ng said that Winchester favours a flexible approach that allows him to use fixed income instruments and cash (the fund is allowed to invest between 50-100% in Asia-Pacific equities and up to 50% in fixed income instruments).
In terms of holdings, Ng noted that Winchester has deep knowledge in managing funds of under-researched small-cap stocks. His high-conviction philosophy is reflected in his relatively concentrated portfolio of 50 holdings.
Ng said that apart from relying on research from his supporting analysts, Winchester is known to use information from reporters and investigators to get on-the-ground data.
“Winchester does not only look at a stock based on financial data. He likes to focus on a company and apply his own qualitative analysis to come up with his stock selection."
Winchester has recently made a strategic shift in his portfolio, Ng said. The fund used to invest heavily into Japanese equities, but has started trimming Japanese exposure.