Redline Recovery Services

The most useful Asian ETF to add to your portfolio

Past performance is no guide to the future, as fund adverts are obliged to remind us.

But clearly, having some understanding of what's happened in the past is important when we're thinking about what we can expect in the future. History won't repeat itself exactly, but at least we might get some clues.

This week, I'm going to look at which sectors have done best in Asia over time and which have been the ones to avoid. I certainly wouldn't suggest you base your whole investment strategy on the results – but it does throw up a couple of ideas …

It's harder than you might expect to pin down which Asian sectors have done best over time. While we have market indices going back decades for many countries, organised sector data typically only goes back 15-30 years, if we're lucky.

Anything more than that depends on reconstructed data. And as usual, most of the historical studies done for this concentrate on the US market.

For example, a 2004 study by Siegel and Schwartz looked at the returns by sector for the original 500 firms in the S&P 500 from 1957 (see table below).

The differences between sectors may look small. But if you compound up a couple of extra percent each year, it makes a big difference over time.

For example, after 15 years, an investment in healthcare would have been worth twice as much as one in materials.

I don't know of any similar long-term studies for Asian markets . Fortunately, we can look at more recent results more easily. The MSCI indices for major Asian markets include consistent sector data going back to 1995. That's by no means long-term, but it's just long enough that it may have some value.

It goes from before the Asian crisis, through that upheaval, then the dotcom crash, the emergence of China and India, the global financial crisis and the recovery. So it certainly covers some very varied conditions.

In that time, the MSCI Asia ex-Japan regional benchmark has gone from a price/book value of just above two in 1995 to just above two earlier this year (it's now slightly lower at 1.85).

So we're not going from an exceptionally low valuation to an exceptionally high one or vice versa – which could produce misleading results, as we'll see later.

The table below shows the returns from January 1995 to June 2011 for the MSCI Asia ex Japan sectors. As you can see, returns have varied greatly.

Debt Collector – Redline Recovery Services LLC – Houston, TX

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