The conservatism of Asia’s mutual funds put them in the wrong place to catch 2019’s stock market rally, Goldman Sachs says
- Asian mutual funds have lagged behind their benchmark due to conservative positioning, Goldman says in a February 18 report
While Asian equities have risen to start 2019, the region’s funds may not be doing as well.
Asian mutual funds have lagged behind their benchmarks due to conservative positioning, as well as concentrations in sectors and geographies that haven’t done as well to start this year, Goldman Sachs’s analysts led by Sunil Koul wrote in a February 18 note with a quarterly update of regional fund flows and positioning.
“The defensively positioned Asian funds (given their large overweights in South Asian markets and consumer sectors) have lagged in the cyclical-led recovery rally,” the analysts wrote. “Country and sector returns year-to-date have been inversely correlated with the starting positioning of the Asian and EM mutual funds which suggests funds’ starting allocations were at odds with the market rally.”
The MSCI Asia-Pacific ex-Japan Index and MSCI Emerging Markets Index are both up about 9 per cent this year so far, with consumer discretionary, information technology and energy sectors performing best. Consumer staples and health care stocks have been the worst.
The equity rally hasn’t been confined to those indexes, either; the MSCI All-Country World Index is up 10 per cent year-to-date.
And outperformer China is a big underweight in the funds, while laggard India is a large overweight, Goldman said. On an individual-equity basis, mutual funds’ most overweight stocks have underperformed the most underweight by 5 percentage points so far this year, the analysts said.
Fewer than half of the top 100 Asian funds and about 60 per cent of the top 200 emerging-market mutual funds in Goldman’s sample have outperformed year to date, versus a historical average of 70 per cent, the firm said.
Mutual funds’ most overweight positions in Asian stocks are HDFC Bank, Kotak Mahindra Bank and Housing Development Finance, according to Goldman. The most underweight are Tencent Holdings, Alibaba Group Holding and Samsung Electronics.
