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If you are looking to invest, you might be wondering what are the top performing funds? We can answer that. Using data from research firm Lipper, we list the best funds available in Hong Kong, ranked by returns net of fees, over the 12 months to February.
The findings can be summed up thus: real estate, Thailand, Philippines and high-yield bonds have all performed well, but gold has been a disaster.
Funds dedicated to the Philippines and Thailand rank highest among the equity funds. All the top bond funds are in high yield.
At the bottom are investment-grade bonds, particularly those priced in pounds, and anything involved with gold.
 
High yield
Hongkongers buy more high-yield funds than any other fund category. And when Hong Kong investors want high-yield bonds, they usually want exposure to the mainland property sector.
Jack Deino, a senior portfolio manager for Invesco, manages an emerging market fund that is the third-best fund in the bond category. The fund's second-biggest country exposure is China, and Deino says about 90 per cent of his China bonds come from the property sector.
Mainland property bonds have been strong performers over the past year, in terms of yield and capital gains. But the sector is prone to busts. Regulators routinely bring mainland property firms to the brink of insolvency by rounds of tough rules on mortgages and bank loans, to cool an overheated market.
Bond fund managers are wary of concentration risk. They worry that the government may one day roll out heavy-handed cooling measures, walloping the whole property sector, taking their portfolio down with it.
Deino says these concerns are overstated. "Chinese property is the most misunderstood sector in the world," he says, adding the mainland market is diversified just in sheer size ("each region or each city marches to the beat of its own drummer and has its own demand").
He adds that the big listed mainland developers need bond markets to raise money, and are therefore expert at investor relations, and operate at a high level of transparency and governance.
BEA Union Investment is also focused on mainland property bonds. About half of the firm's Asian bond and currency fund (the second-best performing bond fund) is invested in the asset, says Henry Wong, the firm's head of fixed income.
"In January [last year], we made a very aggressive move into this sector, which is why our performance in 2012 is strong," Wong says.
BEA launched its fund in August 2008 at the height of the global credit crisis. It offered beleaguered investors high-quality Asian-currency alternatives to US and European bonds. At launch, about 80 per cent of the fund was investment grade, says Wong. The fund has since been marching steadily down the credit curve, investing in higher risk and higher return securities. Today, only 10 per cent of the fund is investment grade - much of the rest is high-yield debt from mainland developers.
High yield has risks, but so does high grade. The bottom performing funds in the bond table are all invested in investment-grade bonds from the developed market. The funds lost money largely because yields on such instruments are paltry, barely enough to cover the costs of the fund.
Currency swings are also a factor. Two of the bottom performing funds are in sterling bonds, and the pound lost 4.4 per cent against the Hong Kong dollar over the review period.
 

Thailand/Philippines
Thai and Philippine funds have done well for two years running, with the MSCI Thailand index up 17 per cent in the review period and the MSCI Philippines index up 41 per cent. Unsurprisingly, the top equities fund is invested in the Philippines, and the remaining top four are Thailand-focused.
The countries' stories are about newfound political stability and growth. Investors who have been spooked by China's declining economic growth are converging on Southeast Asia.
The Philippines received its first sovereign investment grade rating, last month, from Fitch, a credit agency. Thailand has bounced back from the 2010 protests that pitted supporters of ex-prime minister Thaksin Shinawatra against his opponents. The country settled down with the 2011 election of Thaksin's sister, Yingluck Shinawatra, as prime minister.
"Thailand has had lots of political back and forth , but with Yingluck in power, we are seeing a lot of stability. A lot of the rhetoric has cooled down," says Tai Hui, the chief market strategist for Asia at JP Morgan Funds.
Medha Samant, an investment director at Fidelity, which manages a top-five equity fund focused on Thailand, says the country is benefiting from an investment boom, with applications for foreign investment rising 40 per cent last year.
"The politics are stable. There has been a big anti-corruption clampdown and the economy performs well, in terms of wage rises, and the next leg up should be infrastructure," says Samant.
 
Gold
It is no surprise given the collapse in price last week that gold-themed funds have been the biggest losers. Gold prices fell 9.1 per cent on Monday, the most since 1983, and the metal has dropped 29 per cent since its peak in September 2011.
Gold has just been a terrible investment. Understanding why means going the rabbit hole of central-bank conspiracy theories hatched by gold bugs. But, fundamentally, gold pays no yield and has little utility. It is the ultimate concept asset.
But most of the top and bottom performing funds share the trait of high volatility. The funds are prone to lose or make a lot of money in any given year. Which means in 12 months, this table could be reversed, with investors selling Thai equities and Chinese property bonds, and all the gold funds back on top.


Real estate, Thailand, Philippines and high-yield funds are performing well

Gold bars at the Zlatarna Celje in Celje, Slovenia. Gold has slumped almost 30 per cent since its peak in September 2011. Photo: Reuters

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Real estate, Thailand, the Philippines and high-yield bonds are strong investments while gold has fallen abruptly off the radar


Real estate, Thailand, Philippines and high-yield funds are performing well

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Real estate, Thailand, the Philippines and high-yield bonds are strong investments while gold has fallen abruptly off the radar

Real estate, Thailand, the Philippines and high-yield bonds are strong investments while gold has fallen abruptly off the radar