Hong Kong's unit trust investors were major movers into European equity funds and bond funds last year. Both proved good calls, for the results of the South China Morning Post Fund Manager of the Year Awards 1998, announced last night, proved that both can deliver the profits, but without the volatility that is too often the price that has to be paid for performance. Despite the occasional comeback that Mike Tyson might envy, Asia's once dominant equity markets failed to recoup the losses that rocked investors following the onset of the economic turmoil in July 1997. The funds which once reflected Asia's promise as the millennium miracle are still languishing at the bottom of the long-term performance tables compiled by Standard & Poor's Micropal, and on which the Fund Manager of the Year Awards are based. Investors who put so much faith in the expected returns from Asia's funds have learned the hard way that there are two sides to investment - reward and risk. The awards also consolidated the US and European funds as solid vehicles for long-term gains, without the extreme volatility that Asia has suffered. This is why the Fund Manager of the Year Awards are not calculated on a first past the post system. The winners are those who have provided the best performance, but the results also take into account what the Micropal analysts regard as a reasonable amount of risks. Awards for fund management groups all went to companies with a wide spread of funds in their portfolios. The message that the fund management industry in Hong Kong is now putting over to investors is that balancing risk means diversifying. Yet a look at the winners among the Standard & Poor's Micropal list of Hong Kong-authorised funds showed that, over five years, the best category performers were those that targeted countries or sectors: Europe, the United States, technology, small Scandanavian countries, and healthcare. Many funds in those sectors have earned five-year non- adjusted returns of 150 per cent plus. The funds which were themselves diversified- the global players - produced more modest returns, often much more modest. None could match a 150 per cent total return figure. Yet, what the globally-diversified funds provided in many cases was much lower volatility - spreading stock and market selection over a large number of markets smoothed out the inevitable bumps which all markets hit from time to time. Bumps were still rocking the Asian specialist funds last year, which ended with both five and three-year performance figures looking dismal. The average Far East ex-Japan fund is still showing a loss of 46 per cent over five years and 37 per cent over three. A long way from the days in 1993 when the same sector showed 100 per cent plus gains and individual funds scored 300 per cent plus returns in 12 months. Even in the jumpy Asian markets it is not the riskiest fund that necessarily provides the best performance. In the Equity Far East & Pacific category, Thornton Oriental Income topped the five-year performance tables, yet ranked almost at the bottom of the volatility scales. Once, Hong Kong investors who had run for the safety of bond funds would have been shot for cowardice, but it was those very funds which last year attracted more local funds than any other sector - a net US$343 billion. In this game of hare and tortoise, the staid old bond funds - assisted by a general fall in world interest rates - have romped ahead of the once more zingy Asian equity funds. More than a score earned accumulated returns of above 50 per cent over five years and 10 more than equalled that over three years.