Fund company: BMO Investments Inc.
Fund type: Asia Pacific Equity
Fundata FundGrade® Rating: A
Risk level: Medium
Load status: Optional
Manager: Robert Horrocks since August 2009; Kenneth Lowe since December 2011
Code: GGF620 (front end)
Minimum investment: $500
See the Fundata FundCard™ for more details.
Analysis: With economic growth rates expected to normalize at levels well below what they had experienced a few years ago, there is much concern about potential volatility in the region. Still, there are a number of compelling reasons to invest in Asia for the long term, particularly the growth and development story right across Asia. Even after the slowdown, growth rates are expected to be significantly higher than what we can expect in the developed world.
For many investors, volatility in the region is a big concern. Given its more balanced mandate, BMO Asian Growth & Income Fund may be a great way to gain exposure to Asia, with levels of volatility that are significantly lower than many of the equity funds available. For the most recent five year period, the volatility of this fund is about 70% of the category average.
To achieve this, the fund invests predominantly in high yielding equities, but will also invest in convertible bonds and preferred shares. As of March 31, it had about 80% exposure in equities, and 20% in convertibles and preferreds.
In building the portfolio, managers Robert Horrocks and Kenneth Lowe of San Francisco-based Matthews International Capital Management use a fundamentally driven, bottom up GARP process that considers the current fundamentals as well as the long-term growth prospects for a company. They focus on dividend paying shares and U.S. dollar denominated convertible bonds. Dividends are a key element to managing overall portfolio volatility. They believe that if a company is growing dividends, it is highly likely that the company itself is growing. The fund has a dividend yield of 3.5%, which is higher than both its peer group and benchmark.
Performance, particularly over the long term, has been strong, outpacing both the index and the peer group by a significant margin. Perhaps even more impressive is that this has been accomplished with a level of volatility that is significantly lower than the category average. The cost is a touch on the high side, with an MER of 2.80%, which is in the upper half category.
While the growth story is strong and the volatility appears to be well contained, I do not believe that this should be used as a core holding. Instead, it should be viewed as a great way to gain some exposure to Asia. In the context of a well-diversified portfolio, I believe that it has the potential to add some incremental return, without adding significant volatility risk.
Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson?s Top Funds Report and Mutual Fund and ETF Update, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.
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