When a fund that targets relatively small or illiquid markets reaches a certain size it begins to start owning an excessive proportion of the investments it targets. This eventually leads to the fund being left unable to sell out of those holdings efficiently in the event of a market downturn, leading to losses or delays for investors.
A fund facing such constraints has two choices: either it can adopt positions in an increasingly large number of individual holdings at the risk of losing its edge over more ‘concentrated’ rival funds that only buy into the best opportunities, or it can shut the doors to new investors.
BlackRock’s emerging markets chief Jeff Shen soft-closed his Luxembourg-based Asia Extension fund earlier this year. Aberdeen Asset Management last year warned it may take the same action on its successful Asia Pacific fund run by Hugh Young.
China demand
Another key trend in Asian investing has been towards asset managers launching China-specific investment funds, as demand for investments targeting what many believe will soon be the largest economy in the world has spiralled in recent years.
In 2011 the IMA launched a sector specifically for China-only funds and it now contains 37 products. With £2bn under management, Fidelity’s Luxembourg-based China Focus fund run by Jing Ning is the sector’s biggest player, while the GAM Star China Equity fund comes second with £1.5bn.
The sector also houses the First State Greater China Growth fund, which like several of the group’s other funds, including First State Indian Subcontinent, is also soft closed.
Finding an open fund
FTAdviser.com’s sister title Investment Adviser publishes an annually updated list of the 100 best funds and fund managers available to UK retail investors, based on short and long-term performance and a range of screening factors.
One of those screening factors is that soft-closed funds are excluded, so that products included in the Investment Adviser 100 Club are always relevant to fund selectors.
The current members of the 100 Club’s Asia Pacific Equity sector include the First State Asia Pacific Leaders fund, Fidelity Asian Values investment trust run by John Lo, the Invesco Asia Trust, Investec Asia ex Japan fund, and M&G Asian, the £635m product run by Matthew Vaight.
In an era where soft-closes are increasingly inevitable for the most successful Asian products, investors keen to access the region’s growth opportunities should check these funds out while the gates are still open.
John Kenchington is editor of Investment Adviser
john.kenchington@ft.com
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