A Performance Breakdown of the Wells Fargo Asia Pacific Fund (WFAAX)

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Returns of the Wells Fargo Asia-Pacific Fund

From a purely NAV (net asset value) return standpoint, in the one-year period ending January 2016, WFAAX came in eighth place among the nine funds chosen for this review. As a benchmark for all funds in this review, we’ll look at the metrics of the MSCI AC Asia-Pacific Index.

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Standard deviation

Standard deviation is used for assessing risks associated with an investment. Simply put, it measures the deviation of a series of returns from its average. A wide deviation reflects high fluctuation in returns, resulting in higher risk, and vice-versa.

For the one-year period ending January 2016, the standard deviation for WFAAX stood at 15.3%. The MSCI AC Asia-Pacific Index had a standard deviation of 16.1% over the same period while the arithmetic average of the standard deviation of all funds in this review came in at 15.3%. Hence, the returns of WFAAX were less volatile than our index and represented the average of the peer group.

Sharpe Ratio

For realized returns, the Sharpe Ratio assesses the average return of a risk-free asset or security (like US Treasuries of a certain maturity) over its total risk, as represented by its standard deviation. The higher the Sharpe Ratio, the better the risk-adjusted performance.

The Sharpe Ratio for WFAAX for the one-year period ending January 2016 stood at -0.67. This risk-adjusted measure stood at -0.62 for the index, hence displaying inferior risk-adjusted performance compared to our benchmark.

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Other metrics

The information ratio shows the consistency of a fund manager along with measuring his ability to generate excess returns over a benchmark. Given the benchmark, the information ratio of WFAAX was -0.04 for the one-year period ending January 2016, making it one of two funds in this review with a negative information ratio.

Meanwhile, the beta of the fund stood at 0.92, making it slightly less susceptible to volatility compared to the index.

A note for investors

WFAAX is invested in FUJIFILM Holdings (FUJIY), UBS Group AG (UBS), KB Financial Group (KB), China Petroleum & Chemical (SNP), and China Life Insurance Company (LFC). The fund had a poor 2015 as well as a poor one-year period ending January 2016. Its investment strategy has clearly not worked very well, because its returns have not consistently beaten the benchmark, and the volatility of those returns have been high. Its core-satellite portfolio construction has theoretical appeal but was not effective in the period under review.

Investors would do well to look at a longer-term performance to decide whether this fund should be their vehicle of choice for investing in Asia-Pacific.

In the next and final part of this series, we’ll put things into perspective as far as investing in Asia-Pacific is concerned, particularly in light of the mutual funds we’ve reviewed and the larger macroeconomic environment.

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