These lesser-known choices set their own course, but do they cost too much?
Some international-stock funds have begun looking beyond the traditional emerging markets to even less-well-traveled territory in an attempt to gain an edge. But an international fund doesn't have to dive into Lebanon or Kenya to set itself apart.
An unusual itinerary alone doesn't guarantee success. But at a time when more and more investors are finding index funds--often of the exchange-traded variety--suitable for their core needs, managers of active funds have to provide something that's truly different. Various statistical measures are available to show how much a fund differs from a benchmark, but sometimes ordinary investors can find funds that are setting their own course simply by looking at the portfolios themselves--and in the process, get a clearer idea of what that fund is all about.
Invesco Asia Pacific Growth
This fund's universe is similar to those of most pan-Asia ex-Japan funds. It has heavy exposure to Asia's emerging markets along with stakes in Australia, Hong Kong, and Singapore. It doesn't own anything in frontier markets such as Vietnam. But its country weightings look vastly different than those of its peers or indexes.
Most notably, it has about 12% of assets in the Philippines. That market gets just 1.5% in the index-tracker iShares MSCI All Country Asia ex Japan Index
The distinctions don't stop there. Invesco Asia Pacific Growth has 10% of assets in Indonesia. That's more than double the index's weighting. It has more than 8% in Malaysia, which is a much larger stake than the two big funds have. The index practically ignores that market. Conversely, the popular India market currently attracts about 19% of the Matthews fund and 27% of T. Rowe Price New Asia. The index has about 11%. But India gets a paltry 3% of assets from Invesco's managers.
This fund stands out on a stock-by-stock level as well. Its top holding at the end of June was SM Investments, a Philippine conglomerate that received nearly 4% of assets. Of all other actively managed funds in the Pacific/Asia ex-Japan category, only T. Rowe Price New Asia owns this company at all, and that fund devotes less than 1% of assets to it. Similarly, Malaysia's Kossan Rubber Industries, a top-10 holding here at 2.4% of assets, can't be found in any other mutual fund in any category, save for two portfolios with negligible positions of less than 0.1%.
Of course, an unusual portfolio alone doesn't make Invesco Asia Pacific Growth, which is available through advisors, worth owning. For one thing, it's expensive: Its current prospectus expense ratio is 1.80%; Matthews Pacific Tiger's is 1.12%, and the T. Rowe fund costs just 1.01%. Invesco Asia Pacific Growth's return over the 10 years through Aug. 6, 2010, lags those of the two big funds while its five-year lands between the two. (The category average isn't that useful here because many of the funds are restricted to a single market.) On the positive side, the Invesco fund has comfortably beaten the index over both periods and has experienced, long-tenured managers in place who also run other Invesco international funds with solid records.
It's worth pointing out that neither the Matthews nor T. Rowe funds are mirroring indexes or peers, either, as their oversized India stakes demonstrate. But for sheer audacity in Asian country weightings, the Invesco fund sets itself apart. If it had a lower cost, its returns would have a better chance of capturing the potential advantages of that stance over time.