Key Drivers of CAJAX Year-to-Date in 2016

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Performance evaluation of the Columbia Asia Pacific ex-Japan Fund

The Columbia Asia Pacific ex-Japan Fund Class A (CAJAX) has emerged as a below-average performer among the nine funds in this review YTD (year-to-date) in 2016. In the one-year period ended June 24, 2016, the fund placed dead last.

We’ve graphed the fund’s performance against the iShares MSCI All Country Asia ex Japan ETF (AAXJ) and the WisdomTree Asia Pacific ex-Japan ETF (AXJL). Let’s look at what’s contributed to its below-average performance YTD in 2016.

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Portfolio composition and contribution to returns

Financials has been the most detrimental contributor to CAJAX YTD in 2016. China’s Ping An Insurance Company has by far been the biggest negative contributor in the sector. Other negative contributors have included Westpac Banking Corporation (WBK) and ICICI Bank (IBN). Meanwhile, Anta Sports Products has hurt the consumer discretionary sector.

Information technology has done the most among all sectors to reduce CAJAX’s negative performance. Tencent Holdings (TCEHY), Taiwan Semiconductor Manufacturing Company (TSM), and Infosys (INFY) have helped the technology sector. Baidu (BIDU) and Lenovo Group (LNVGF) are among CAJAX’s major negative contributors.

The materials sector has been led by Amcor and James Hardie Industries (JHX). However, LG Chem has reduced these positive contributions. China’s CNOOC (CEO) and China Petroleum & Chemical (SNP) have helped the energy sector to contribute positively to the fund. Meanwhile, Korea Electric Power (KEP) has nearly single-handedly powered the utilities sector.

Investor takeaway

CAJAX has underperformed the passively managed AAXJ. Its portfolio turnover is quite high, which doesn’t reflect conviction in its stock picks. Though it’s not a bad strategy per se, high portfolio turnover should result in superior performance, else it adds to the trading costs of a fund, thereby reducing returns.

For now, it doesn’t seem that this strategy is working for the fund. It’ll be interesting to see whether the fund’s managers settle on a certain portfolio composition.

Let’s move on to the Fidelity Advisor Emerging Asia Fund Class A (FEAAX).

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