Asia presents a wide array of investment opportunities, spanning developed economies like Australia to emerging markets (EM) such as China and India. With around 60% of the global population residing in the region, its economic significance is undeniable. However, it's important to note that population growth and economic expansion do not always translate into strong stock market performance.
Many passive, or tracker, investment funds following an Asia share index, such as those on our Preferred List, L&G Pacific Index and Vanguard FTSE Developed Asia Pacific ex-Japan UCITS ETF, invest in developed Asia (outside of Japan). This means they are mostly exposed to Australia, South Korea and Hong Kong. The L&G fund also includes Taiwan. They therefore typically have different portfolios to most active funds in the sector. Active strategies often encompass India and mainland China too, as well as other emerging Asian countries such as Indonesia and Thailand.
For broad passive exposure to emerging Asia, it can be preferable to select an emerging market product rather than an Asian one depending on the desired geographical mix. These will have chunky weights to China and India and dilute any bias to Taiwan or Korea. An investor could consider single-country strategies instead or alongside.
Concentration risk in Asian equity markets
Many investors fear the US markets have become too dominated by the performance of a narrow group of stocks. The same is true of major Asian and EM indices where a select few technology stocks dominate. We previously looked at this from an EM angle here.
This is borne out in some of the stock weights in the passive funds mentioned above. L&G Pacific Index Trust has around 20% in Taiwan’s chip giant TSMC, while Vanguard FTSE Developed Asia Pacific ex-Japan UCITS ETF is heavily weighted to Korea, with its top holding, Samsung – also recently joining the $1tn club – accounting for 18%. A passive approach to Asia Pacific markets therefore needs to be carefully chosen with these biases in mind – which effectively involves an active decision in terms of geography and individual stocks.
As an alternative to an Asia ETF or passive fund, active funds contain a wide mix of developed and developing Asian economies. Yet here too is a lot of variation, usually according to the fund management approach. Investors therefore need to ensure they are happy with the philosophy of the manager and the mix of exposures in the fund before investing. Given the differences in geographical make-up, it’s normal to see wide variations in performance.
Recent performance of Far East markets
The conflict in the Middle East negatively affected all riskier assets from March 2026 and led to rises in the US dollar and expectations for higher US interest rates, both of which are considered negative for Asian markets. As a significant oil importer, India was particularly caught up in the volatility of energy, and the past year has been a more difficult period for that market.
Yet there was a strong rebound across the region in April, driven by improved sentiment towards Chinese equities, robust corporate earnings, and a rebound in technology and manufacturing exports. Although, as always, past performance is not an indication of future returns.
Korean and Taiwanese AI chip makers, representing the biggest stocks in most indices, have dominated returns in the region over the past year. It’s therefore been hard for more diversified, actively managed funds to keep up, especially those taking a more value-orientated approach or those that encompass more small and medium-sized businesses.
Overall, here's how the actively managed investment funds in the Asian sector on our Preferred List got on over the past 12 months, as well as in previous periods, with commentary on each fund. As always, investors should consider a fund’s literature, including Key Investor Information Document, before investing, and align their selections with their risk tolerance, market outlook, and confidence in fund managers’ approaches. To invest in emerging markets in Asia and elsewhere means being comfortable with a higher-risk approach and accepting the additional volatility this brings.
Past performance is not a reliable indicator of future returns. Figures are calculated in £ on a % total return, bid-to-bid price basis with net income reinvested. Source: FE Analytics, data to 31/07/26.
Four Asia fund investments to consider
1. Asian Total Return Investment Trust
This is an investment trust that aims to provide capital growth by investing in Asia-Pacific equities and manage risk through hedging techniques. The manager, Schroders, has a large Asian equity team which is important given the bottom-up, research-intensive nature of the process they use for identifying companies.
Managers Robin Parbrook and King Fuei Lee believe investors must be selective in their exposure to the Asian growth story to maximise returns. The key positions in the portfolio are businesses with strong secular growth trends, away from the state-owned enterprises in the benchmark that offer little opportunity for structural growth.
To help diversify the portfolio, the managers have split the region into four investment clusters, each with different fundamental drivers. The Korea/Taiwan cluster is based on the region’s world-leading technology stocks, which have high barriers to entry due to their intellectual property, such as semiconductor companies, although these can experience some cyclical volatility.
The managers view the China/Hong Kong cluster as a market with structural challenges. Chip makers TSMC, Samsung and SK Hynix plus Chinese internet stock Tencent dominate the portfolio with a combined weight of 30%. Chroma ATE (chip testing equipment) is now a top‑10 position too. Conversely, the managers are finding little opportunity in India.
The trust has had an excellent 2026 so far and has even kept up with the Taiwan and Korea-dominant MSCI Asia Pacific ex-Japan index. Some modest gearing – borrowing to invest, which adds to the risk – also helped propel returns.
2. Fidelity Asian Values Investment Trust
This more specialist trust can complement larger company-focused Asian funds and blend well with growth-biased investments from a style perspective. Contrarian manager Nitin Bajaj seeks out good quality, conservatively run but undervalued opportunities in small and medium-sized businesses across Asia. He continues to stay away from fashionable stocks where high valuations do not leave enough ‘margin of safety’, as well as those with high debt levels. Given the breadth of opportunities available to the manager and the inefficient nature of the asset class, we believe he is well placed to add value over the long term.
The ability to short (to profit from falling prices) and the modest use of derivatives are differentiating features the manager can also use to help protect capital when he sees fit. As performance has the potential to be volatile given the nature of the asset class as well as the manager’s defined style, investors should be willing to hold the Trust for the long term.
The Trust remains heavily invested in the consumer discretionary, financials, consumer staples, and energy sectors. At a country level, it was biased to China, Indonesia, and Australia over the period. Chinese holdings mostly performed well, but Indonesian stocks, presently around 15% of the portfolio, proved problematic as a stronger US dollar and weaker economic growth weighed on investor sentiment.
More recently, investors seem to be rotating out of growth stocks and into value names in Asian small caps. The managers believe this trend may continue, as small-cap value stocks remain at a significant discount to small-cap growth stocks. The discount narrowed to 3% at the end of July, as the trust’s big underweights to Taiwan and Korea and the reversal of the ‘AI chip mania’ trade in July caused it to perform strongly, bringing its share price performance back in line with the Asian small cap index year-to-date.
The trust uses gearing (borrowing to invest), which exacerbates the ups and downs of the returns from the underlying investments. These variables add a further element of risk over an equivalent unit trust or OEIC, and investors should be willing to commit to the longer term.
3. FSSA Asia Focus
Industry veteran Martin Lau heads this concentrated but typically more cautious Asian fund that favours good-quality companies with sustainable and more predictable growth.
The investment philosophy is based around stewardship, with the team seeing themselves as part-owners of a business and engaging with management to ensure they run it in a shareholder-friendly manner. There’s a well-resourced, on-the-ground team to find ideas and carry out this dialogue first-hand.
The managers aim to make relatively few changes to the portfolio, typically holding onto investments for many years. They have a clear focus on valuation and the risk of loss, as well as a preference for companies with a consistently growing demand for their products or services that enables them to prosper over the long term. The team particularly likes to see a persistent competitive advantage, such as a well-known brand or large market share, and a robust financial position.
Given this disciplined and more conservative approach, we expect the fund to typically hold up relatively well when markets fall, within the context of the sector, but lag when they rise strongly. The well-defined style also means the fund typically looks very different from a passive option – which means it typically performs differently too. Given its characteristics, it could blend well with a more adventurous Asian fund.
Currently, the managers are wary of valuations in India and areas of the technology sector, preferring selected consumer-related companies, healthcare and competitive exporters in the region. The fund has underperformed over the past year amid mostly strong Asian markets largely owing to its more conservative approach.
4. Invesco Asian
This fund represents a candidate for an investor’s core holding in Asian equities, having been part of the Charles Stanley Direct Preferred List since 2015. Manager Will Lam has consistently shown a bias towards cash-generative companies with strong balance sheets and often a slight preference for technology and internet-related stocks. He focuses on valuations and seeks to take advantage of pricing inefficiencies in Asian markets that result from other investors’ behavioural biases.
Lam’s process involves extensive company contact and emphasises the importance of positive cash flow, solid balance sheets, stability of market position, and the quality and openness of management. The process is pragmatic and flexible, aiming to respond to a range of different economic and market conditions.
His strategy of investing in company shares trading below their estimate of fair value often means being disciplined and contrarian, looking at unloved areas of the market. As such, he has not shied away from China during spells of poor performance and was an early enthusiast of Korean stocks when they were far cheaper. However, it’s important to note that past performance is not a reliable guide to future returns.
The manager’s wariness of valuations in much of the Indian market has led him to run an underweight to the country, but he does like financials like HDFC Bank. Chip makers TSMC and Samsung plus Chinese internet stock Tencent dominate the portfolio with a combined weight of around 25%. The fund has had a good 2026 so far but performance is not a guide to the future, and the Taiwan and Korea-dominant MSCI Asia Pacific ex-Japan index is ahead of it.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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