How to invest in Asian Markets with ETFs
Which index has outperformed the NASDAQ throughout 2020? The Asian Technology ETF called ASIA, which is one of the 10 ETFs on the ASX which focuses on the Asian markets. Below, we look at the ETFs with Asian exposure to understand where and when to use them.
For reference, since 1 January 2020, the ASIA technology ETF is up +52% against the NASDAQ100 +39%. Since the CV-19 lows, the NASDAQ has run harder, because it fell harder into the lows.
With US presidential election issues, pending lame duck Biden presidency and the northern hemisphere re-entering lockdowns, recent times have investors looking for greener pastures in Asia.
Which ETF to choose?
For Australian investors we have 10 ETFs or listed managed funds to choose from.
These are broken into four categories as follows:
1. Hedged or not hedged.
An ETF with international exposure either:
- Locks on the AUDs and gives you only the net index movements minus the cost of hedging the portfolio
- Gives you the raw index exposure with the fluctuations of the AUD adding to the ups and downs along the way.
An example of a hedged Asian ETFs is
PAXX - Platinum Asia Fund (Quoted Managed Hedge Fund)
PAXX is a Managed Fund and is summarised as a portfolio that:
Primarily invests in the listed securities of Asian companies. These Asian companies may list their securities on securities exchanges other than those in Asia and the Fund may invest in those securities.
May invest in companies not listed in Asia, but where their predominant business is conducted in Asia.
May invest in companies that benefit from exposure to the Asian economic region. Asia is defined as all countries that occupy the eastern part of the Eurasian landmass and its adjacent islands and is separated from Europe by the Ural Mountains. It includes the Russian Far East.
Investors in the this fund might expect the Portfolio to contain listed companies based in China, Hong Kong, Taiwan, Korea, Malaysia, Singapore, India, Thailand, Indonesia, Philippines, Sri Lanka, Pakistan and Vietnam.
Will ideally consist of 50 to 100 securities that Platinum believes to be undervalued by the market. Cash may be held when undervalued securities cannot be found. Platinum may short sell securities that it considers overvalued.
Will typically have 50% or more net equity exposure.
2. General Market Exposure These are ETFs that replicate large indices; think for example the China A-Shares that are somewhat more difficult to purchase than an ETF listed on the ASX. These ETFs provide a broad-brush exposure to a certain aspect of the market.
Two examples are:
IAA - IShares Asia 50 ETF
Seeks to track the investment results of an index composed of 50 of the largest Asian equities.
VAE - Vanguard FTSE Asia Ex Japan Shares Index ETF
Provides low-cost exposure to securities listed in Asia excluding Japan, Australia and New Zealand.
Is exposed to the fluctuating values of foreign currencies, as there will not be any hedging of foreign currencies to the Australian dollar.
3. Thematic investments
ASIA - BetaShares Asia Technology Tigers ETF
Provides simple and cost-effective exposure to 50 of the most innovative and disruptive technology companies in Asia, including Alibaba, Tencent, Baidu and JD.com – companies that are revolutionising the lives of billions of people in the Asian region.
Tactical exposure to the Asian technology sector
A complement for investors with an existing allocation to U.S. based technology companies
A core component of a global equities allocation providing transparency and diversification benefits
4. Stock pickers
These are all Managed Funds who select the best companies to find their mandates. While each mandate is slightly different, they all have an Asian investment focus.
EAI - Ellerston Asian Investments
Provides investors with exposure to a portfolio of high growth equity securities in Asia via an Australia Securities Exchange (ASX) listed investment company.
Managed by Ellerston Capital Limited
The aim is to generate superior returns for Shareholders, by identifying and investing in the growth opportunities which the Manager believes are present in the Asian region.
Performance will be benchmarked against the MSCI All Countries Asia Pacific Ex Japan Index (AUD).
Adopts the Manager's high conviction investment style which aims to identify Asian companies that are high growth and are valued at a reasonable price.
Unconstrained by benchmark weight, capital is allocated by implementing high conviction ideas from a filtered universe of Asian securities.
The Manager utilises top-down macro analysis, identification of thematics in the region and combines this approach with detailed bottom-up analysis via a conviction scorecard. PAF - PM Capital Asian Opportunities Fund Limited
Offers investors a diversified portfolio of around 15-35 Asian listed equities (ex-Japan), of which the Manager considers to be undervalued.
With a wide investment universe, the Manager focuses on key thematics that the Manager believes will provide long term growth in Asia. The Manager's investment process is a research intensive, bottom-up approach which identifies both risk and opportunity.
PAI - Platinum Asia Investments Limited
The investment objective is to provide capital growth over the long-term through investing primarily in undervalued listed securities of companies in the Asian Region ex Japan across all sectors. EAF - Evans & Partners Asia Fund
Aims to provide attractive risk-adjusted returns over the long-term by investing in high-quality companies in the Asia ex Japan region.
The Investment Manager will initially target a concentrated portfolio of 30-50 undervalued securities domiciled in the Asia ex-Japan region which may exhibit some or all of the following characteristics: Quality management and good corporate governance standards; Sound business model; Solid financial position; Sufficient growth to justify a premium over the current price.
VG8 - VGI Partners Asian Investments Limited
A listed investment company that has been established to provide investors with access to a concentrated portfolio, predominantly comprised of long investments and short positions in Asian listed securities; and the investment expertise of VGI Partners, the Manager.
Seeks to provide long-term capital growth with a focus on capital preservation; and to deliver superior risk-adjusted returns over the long term.
Will focus on companies listed in countries with a robust legal system, strong corporate governance and developed capital markets.
In practice, for several years at least, the portfolio is likely to be weighted towards investments in Japan, South Korea, Singapore, Hong Kong, Taiwan and Australia.
Aims to typically invest in 15-30 long investments.
The top ten long investments will usually represent between 40-50% of the portfolio’s NAV.
They will not make the Asian strategy available through any other fund.
This is different from many other listed investment companies, where an identical strategy may be available via an unlisted fund, thus reducing demand for the listed fund’s shares.