When we talk about diversification, we generally tend to mean investment across various asset classes including equities, bonds, commodities and bullion. However, diversification can also be on the basis of geography. Investment across geographies can boost returns, especially when a particular region is going through a rough patch.
Both the U.S. and Europe have their share of problems. The continuous drop in oil prices and sluggish growth in China are adversely affecting their markets. Moreover, the debacle faced by bank stocks is weighing on their economies. And again, 2016 is the presidential election year in the U.S., so be prepared for a lot of volatility in the region.
Hence, investment in mutual funds that focus on the Asia-Pacific region can be a good choice since this corner of the world has some of the world's most diverse and economically vibrant countries. Moreover, investment across developed and emerging financial markets in the Asia-Pacific region can help you to balance out your investment.
Developed economies are expected to provide stable returns to your portfolio. In fact, Japan Stock funds were the best performers of 2015. Emerging economies like India are also expected to perform better than most of their counterparts, which will eventually help to boost your returns. For the short term, China may not be in very good shape, but the long term still holds good. China's inherent strengths are evident in the rise in consumer confidence during the fourth quarter.
Invest in Japan for Enticing Returns
Japan-focused mutual funds had given a superlative performance in 2015 despite macroeconomic headwinds. The Japanese Prime Minister Shinzo Abe's announcement of the second stage of his economic policies, termed Abenomics, helped Japan Stock mutual funds to move north. The "stage two" plan is aimed at reviving the Japanese economy. The plan aims to increase Japan's GDP to 600 trillion yen, provide support for child care and improve social security.
This year too, more good news is in store since Bank of Japan has introduced a negative interest rate policy to boost its ailing economy and curtail deflation. The central bank intends to trim rates further into negative territory to push borrowing cost even lower. This will lure consumers to spend more, which will eventually help the bank to achieve its inflation target rate of 2%. This should bode well for funds this year.
Moreover, thanks to Abe's structural and corporate reforms, shareholder returns are expected to get a further boost. The reforms include rise in independent corporate directors, increase in share buybacks and dividends, and less 'cross holdings' among business partners.
India's GDP to Increase
Among emerging economies, India expects its growth for the current fiscal to be 7.4%, a tad higher than the World Bank's expected growth rate of 7.3%, according to the Reserve Bank of India (RBI). India had already expanded at 7.3% in the third quarter ended December 31, 2015. The reading was marginally higher than the 7.1% growth recorded during the same period of 2014. The Indian growth story has been bolstered by a rise in public spending.
For the next fiscal, RBI Governor Raghuram Rajan sees the economy expanding to 7.6%. Rajan said that the "Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude."
China Exhibits Inherent Strength
Meanwhile, a flurry of weak Chinese economic reports and yuan's devaluation had adversely affected global markets. However, a recent survey of Chinese consumers indicated that investors across the world may well be overreacting. The global consumer survey conducted by research company Nielsen indicated that consumer confidence increased to 107 for China during the fourth quarter.
Chinese consumers have shown greater confidence than their counterparts in several mature economies. For instance, confidence levels have declined over the fourth quarter for the United Kingdom, U.S. and Germany and stand at 101, 100 and 98, respectively.
Moreover, China's economy increased by 6.9% last year. This was widely depicted as the worst pace of growth in 25 years. However, what such a depiction of events omits is the fact that this rate of growth is twice as much as mature economies and second to none of the major economies, but India.
4 Asia-Pacific Mutual Funds to Invest In
The Pacific Basin having fast-growing potential markets ensures that it is an exciting investment destination. In addition to the above mentioned economies, growth outlook for Australia is also expected to be 2.1% this year, up from 1.6% last year, according to the World Bank.
With a high degree of diversification between developed and developing markets, mutual funds from this region present a healthy mix of growth opportunities and safety for capital invested. Moreover, diversified Asia-Pacific mutual funds have a wider investment range than other Asia-oriented portfolios.
Country weightings for these types of funds vary tremendously. Most of these funds have exposure to Japan and Hong Kong. On an average, these funds invest a minimum 75% of their assets in Pacific countries, including at least 10% in Japan.
We have now selected 4 Asia-Pacific mutual funds that have positive 3-year and 5-year annualized returns, carry a low expense ratio, have minimum initial investment within $5000 and possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy).
Fidelity Pacific Basin (MUTF:FPBFX) seeks growth of capital over the long term. FPBFX invests the majority of its assets in securities of Pacific Basin issuers and other investments that are tied economically to the Pacific Basin.
FPBFX's 3-year and 5-year annualized returns are 6.1% and 4.1%, respectively. This fund's performance, as of the last filing, when compared to funds in its category, was in the top 16% in the last 1 year, top 12% over the past 3 years, and in the 8% over the past 5 years. Annual expense ratio of 1.17% is lower than the category average of 1.33%. FPBFX has a Zacks Mutual Fund Rank #1.
Matthews Asia Growth Investor (MUTF:MPACX) seeks long-term capital appreciation. MPACX invests a large portion of its net assets in the common and preferred stocks of companies located in Asia.
MPACX's 3-year and 5-year annualized returns are 2.4% and 3.1%, respectively. This fund's performance, as of the last filing, when compared to funds in its category, was in the top 33% in the last 1 year, top 27% over the past 3 years, and in the 18% over the past 5 years. Annual expense ratio of 1.11% is lower than the category average of 1.33%. MPACX has a Zacks Mutual Fund Rank #1.
Columbia Pacific/Asia Z (MUTF:USPAX) seeks long-term capital appreciation. USPAX invests a large portion of its assets in companies located in Asia and the Pacific Basin.
USPAX's 3-year and 5-year annualized returns are 0.1% and 0.9%, respectively. This fund's performance, as of the last filing, when compared to funds in its category, was in the top 23% in the last 1 year, top 39% over the past 3 years, and in the 22% over the past 5 years. Annual expense ratio of 1.23% is lower than the category average of 1.33%. USPAX has a Zacks Mutual Fund Rank #2.
Matthews Asia Dividend Investor (MUTF:MAPIX) seeks total return with an emphasis on providing current income. MAPIX invests a major portion of its assets in dividend-paying equity securities of companies located in Asia.
MAPIX's 3-year and 5-year annualized returns are 1.2% and 3.5%, respectively. This fund's performance, as of the last filing, when compared to funds in its category, was in the top 19% in the last 1 year, top 39% over the past 3 years, and in the 14% over the past 5 years. Annual expense ratio of 11.05% is lower than the category average of 1.33%. MAPIX has a Zacks Mutual Fund Rank #2.