Thursday, February 2, 2017

Comparing two classes of mutual funds

China Versus Diversified Asia


Question:   A person is considering investing in either an equity stock fund covering China or a more diversified equity stock fund covering all of Asia.   He goes to the research portal of a major brokerage firm and finds information on 18 stock funds for China and Nine stock funds for Diversified Asia.

The charts contain return data for each fund for five periods YTD, 1-yr, 3-yr, 5-yr and 10-yr.

What can we say about the choice of mutual fund class?

What can we say about the importance of choosing a good fund inside one of these two mutual fund class?

Short Answer:  In recent years, Diversified Asia funds tended to substantially outperform funds that only invested in China.  However, there is substantial dispersion in intra-class fund performance.   Picking the better sector is not a guarantee of success.  Even in recent years, a strongly performing China fund could have outperformed a weakly-performing Diversified Asia fund. 

Data:   The data on stock returns for mutual funds investing in China and mutual funds investing throughout Asia were obtained from a search engine on a major on-line trading firm.   The download was implemented on February 2, 2017.



Equity Stock Funds for China
#
YTD
1-yr
3-yr
5-yr
10-yr
1
0.0732
-0.0524
-0.0185
0.0727
0.0595
2
0.0584
-0.0424
0.0553
--
--
3
0.0405
0.0570
0.0534
0.1111
--
4
0.0754
-0.0112
0.0039
0.0726
--
5
0.0714
0.0195
0.0021
0.0429
0.0057
6
0.0626
0.0476
-0.0010
0.0599
0.0550
7
0.0499
-0.0235
-0.0059
0.0695
--
8
0.0646
-0.0085
-0.0064
0.0644
--
9
0.0716
-0.0644
-0.0076
0.0605
0.0400
10
0.0570
0.0173
-0.0140
0.0631
0.0369
11
0.0732
-0.0524
-0.0185
0.0727
0.0595
12
0.0702
0.0295
-0.0229
0.0258
0.0325
13
0.0756
-0.0517
-0.0245
0.0211
0.0490
14
0.0593
-0.0293
-0.0313
0.0517
0.0435
15
0.0753
0.0473
-0.0287
0.0095
0.0340
16
0.0693
0.0049
-0.0305
0.0067
0.0330
17
0.0546
-0.0105
-0.0361
0.0182
-0.0109
18
0.0658
-0.0922
-0.0594
0.1116
0.0485


Equity Stock Funds for Diversified Asia
#
YTD
1- yr
3-yr
5-yr
10-yr
1
0.0454
0.0293
0.0317
0.1093
0.0503
2
--
0.1397
0.0272
--
--
3
0.0432
0.0413
0.0254
0.0785
0.0760
4
0.0667
0.0116
0.0180
0.0625
0.0258
5
0.0549
0.0177
0.0108
0.0771
0.0224
6
0.0631
-0.0044
0.0092
0.0570
0.0205
7
0.0466
0.0091
0.0078
0.0749
0.0489
8
0.0724
0.0223
-0.0047
0.0823
0.0257
9
0.0402
0.0743
--
--
--


Summary Statistics:  The summary statistics on these two groups of funds are presented below.


Summary Statistic For Equity Stock Funds China

YTD
1-yr
3-yr
5-yr
10-yr
Mean
0.0649
-0.0120
-0.0106
0.0549
0.0374
Median
0.0676
-0.0109
-0.0163
0.0605
0.0400
STD
0.0099
0.0428
0.0283
0.0312
0.0204
Percent<0
0.0000
0.6111
0.7778
0.0000
0.0769
min
0.0405
-0.0922
-0.0594
0.0067
-0.0109
Max
0.0756
0.0570
0.0553
0.1116
0.0595
count
18
18
18
17
13


Summary Statistics for Diversified Asia

YTD
1-yr
3-yr
5-yr
10-yr
Mean
0.0541
0.0379
0.0157
0.0774
0.0385
Median
0.0508
0.0223
0.0144
0.0771
0.0258
STD
0.0121
0.0444
0.0121
0.0168
0.0207
Percent<0
0
0.111111111
0.125
0
0
min
0.0432
-0.0044
-0.0047
0.0570
0.0205
Max
0.0724
0.1397
0.0317
0.1093
0.0760
count
8
9
8
7
7


Discussion of Results:


YTD both China and Diversified Asia have done well.   YTD dispersion returns are a bit higher for China.   I suggest discounting YTF comparisons because the year is really young.

Average and median 1-yr and 3-yr fund returns are negative for China and positive for Diversified Asia.

The 3-yr and 10-yr standard deviations of returns are substantially lower for diversified Asia than for China.

The 1-yr and 3-yr return on the worse performing Asia fund is negative.  

Concluding Remark:  Obviously, this result does not always hold.   In December of 1989 it would have been wise to take money out of Japan and put exclusively in China.  However, it is likely that 1989 is the exception proving a rule.

Picking the fund class does not guarantee success.   In recent years, a person could have successfully predict that Diversified Asia would outperform China and still end up in a dog for a Diversified Asia fund. 



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