How This Recommended Fund Meets Two of Three “Holy-Triangle” Objectives
March 26, 2012
Schroder Asian Growth Fund, one of our Recommended Funds in the Asia ex Japan space, has delivered market beating performance, but more remarkably, it does so at one of the lowest expense ratios in the space.
Author : Nick Tay
Untitled Document
Main points:
- Schroder Asian Growth Fund, a recommended Asia ex-Japan equity fund, is a market-beating fund over a 5-year annualised period, returning 1.28% versus its benchmark return of -0.20%
- The fund is also maintains one of the lowest expense ratios in the equity fund space
– the tenth lowest among all equity funds (as at 23 March 2012)
– at 1.25%
- Investors should be prepared to hold the fund for 3 years or longer
How This Recommended Fund Meets Two of Three “Holy-Triangle” Objectives
“Fast, Good, Cheap – choose two.” – Anonymous. In the IT world, the saying goes you can only have two of three criteria – fast, good or cheap – also known as the holy triangle of “better, faster, cheaper” by designers, engineers and managers.
In the world of investing, often the same principle applies. Fast moving, high-octane, high return strategies often come with high expense ratios. But if you’re willing to take a long-term approach to investing, often you’ll find good-performing funds that charge very reasonable fees. Case in point: Schroder Asian Growth Fund, 2011 Recommended fund for the Asian ex-Japan equity category. Chart 1 displays the fund’s performance versus its benchmark, the MSCI Far East ex-Japan Index.
Table 1 displays the yearly and annualised returns, from end-2006 to end-2011.
Table 1: Yearly and annualised return
Y-o-Y return, end-2006 to end-2011
Year
Schroder Asian Growth Fund
MSCI AC Far East ex-Japan Index
2007
21.87%
28.43%
2008
-52.14%
-50.39%
2009
78.95%
65.10%
2010
14.59%
9.21%
2011
-10.88%
-13.84%
Annualised Return, end-2006 to end-2011
Fund
Schroder Asian Growth Fund
MSCI AC Far East ex-Japan Index
Return
1.28%
-0.20%
Outperformance in bold. source: iFAST compilations, in SGD terms, dividends reinvested.
As seen in Table 1, the fund has beaten the benchmark for the past three years, from 2009 to 2011 (indicated in bold), and this has contributed to the fund’s annualised return of 1.28%, a significantly better return than the benchmark’s -0.20%. So we’ve established the fund’s performance beats the market. But what about the “rock bottom” expense ratio?
source: iFAST compilations, last accessed at 23 March 2012, via fund selector.
From Table 2.1, we can see the peer average expense ratio is 1.73% (as at 23 March 2012) and Schroder Asian Growth Fund stands out with its uncommonly low expense ratio of 1.25%. But we can take this a step further. We filtered another list of funds, again with the fund selector with the following criteria:
Main category: “Equity”
Specialist sector: “General”
This generates a list of all equity funds that have no sector specialization, and for all geographical regions. In other words, all equity funds regardless of which geographical region they invest in. We then sorted them by expense ratio. Table 2 lists the 10 funds with the lowest expense ratios (as accessed at 23 March 2012).
source: iFAST compilations, last accessed at 23 March 2012, via fund selector.
Smack at the tenth-cheapest position in the list is the Schroder Asian Growth Fund, with a 1.25% expense ratio. Considering there are three index funds in the list, one of which has an expense ratio of 1.17%, an actively-managed Asian equity fund with an expense ratio of 1.25% is significantly cheaper than both its peer group, and a good number of equity funds.
Good and Cheap…but Fast?
We’ve established the fund beats the benchmark (i.e. good), and the fund has one of the cheapest expense ratios in the equity space (i.e. cheap). So on one last metric, how long would you have to hold the fund to see a reasonable chance of positive returns? To get a gauge on how long you would need to hold the fund, we look at 12-mth and 36-mth daily rolling returns. Rolling returns are the returns over a given period, rolled daily. For instance, the first data point of a 10-day rolling return is the return from 1 Jan 2010 to 11 Jan 2010. The second data point is then 2 Jan 2010 to 12 Jan 2010. The purpose of examining rolling returns is to gather all possible returns over end-2006 to end-2011, and observe how often investors walk away with a win (return > 0%) or a loss (return =< 0%).
Chart 3.1 shows the proportion of wins versus losses over a rolling 12-month holding period from end-2006 to end-2011.
Chart 3.2 shows the same proportion over a rolling 36-month holding period. The key number for the sake of this section is the number of wins – higher is better.
Comparing the two charts shows that the proportion of positive observations (i.e. wins) is considerably higher with a holding period of 36 months. From end-2006 to end-2011, investors who held the Schroder Asian Growth Fund for 12 months saw positive returns in 55.93% of observations. Investors who held the fund for 36 months saw positive returns in 63.47% of observations – a fairly significant increase in the number of wins. Do note that this discussion says nothing about how large the win is – we’re not making projections about the fund’s returns – but merely what proportion of all possible returns are positive. The key takeaway for investors is this: be prepared to hold this fund for at least 3-years or more, as a shorter holding period can adversely affect your chances of seeing positive returns.
Conclusion
We’ve demonstrated the Schroder Asian Growth Fund posts market-beating performance on an annualised 5-year basis. We’ve also looked through expense ratios, and found the fund to have one of the lowest expense ratios in the equity space. Investors should be prepared to hold the fund for at least 3-years, to increase their chances of positive returns.
Bottom line: Buy this fund if you want exposure to Asian equities and have a time horizon of at least 3 years.
Nick Tay tweets randomly onTwitter, connects with people onFacebookorGoogle+, and loves all things investing, social media and Youtube. If you have feedback, you canemail, or leavea post on the forum. I promise to read all feedback, and will make every effort to respond where possible. If you know of anyone who can benefit from this article, do a favour and share it with them– but only if you think it’s worth sharing!
Nick Tay of the iFAST Content Team is part of iFAST Financial Pte Ltd.
iFAST and/or its licensed financial adviser representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the article, or any unit trusts or Singapore Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.
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