Here are five funds for investors who are happy with both qualifications:
First State Global Emerging Markets Leaders
Jason Hollands (pictured), managing director of business development and communications at Bestinvest, says the emerging markets sector is one of the best suited to a high-growth environment. Hollands says that in addition to significant growth opportunities, emerging markets also benefit from low valuations at the moment.
"I’d pick First State Global Emerging Markets Leaders," he said.
| Name | First State Global Emerging Markets Leaders |
|---|---|
| Fund size | £3.5bn |
| Min. Investment | £1,000 |
| TER | 1.56% |
| Yield | 0.50% |
| Managers | Jonathan Asante and Glen Finegan |
| FE Crown Rating | 5 Crowns |
Source: FE Analytics
The five crown-rated fund is top quartile over one, three and five years.
It has made 329.01 per cent since launch in December 2003, while its IMA Global Emerging Markets sector and MSCI Emerging Markets benchmark are up 240.45 per cent and 251.14 per cent respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
It is headed up by Jonathan Asante and FE Alpha Manager Glen Finegan.
Firms that supply consumer products make up the largest weighting in the portfolio, at 34.9 per cent. Telecommunications & technology is the second-largest sector weighting, followed by financials.
Hollands points out the leader in the sector, Aberdeen Emerging Markets, has soft-closed, meaning investors need to look elsewhere for exposure.
Templeton Frontier Markets
Hollands says frontier markets are poised for a surge in growth, but due to the small size of the sector – the combined GDP of all the frontier markets is roughly the same as the Philippines – the greatest risk lies in a flood of liquidity.
"No one is saying Nigeria is the next China, but clearly there are opportunities there," he said.
"The risk is that a lot of money will head that way and flood the market."
"If you’re willing to take on a considerable amount of risk, then go for the Templeton Frontier Markets fund."
| Name | Templeton Frontier Markets |
|---|---|
| Fund size | $1.2bn |
| Min. Investment | £5,000 |
| TER | 2.58% |
| Manager | Dr Mark Mobius |
| FE Crown Rating | 4 Crowns |
Source: FE Analytics
The four crown-rated portfolio sits in the IMA Specialist sector, making it difficult to compare against other funds, but it has outperformed its benchmark, the MSCI Frontier Markets index, over one and three years.
Since launch in 2008, the fund has made 100.34 per cent while the index has lost 2.09 per cent.
Performance of fund since launch vs index
Source: FE Analytics
While frontier markets are traditionally perceived as riskier than other areas, the Templeton fund has managed to keep a lid on volatility.
Over the last four years, it has an annualised score of 15.29 per cent, compared with 14.9 per cent from the FTSE All Share, according to FE Analytics.
Cavendish Asia Pacific
FE’s head of research Rob Gleeson prefers the four crown-rated Cavendish Asia Pacific fund for exposure to emerging markets.
| Name | Cavendish Asia Pacific |
|---|---|
| Fund size | £84.2m |
| Min. Investment | £2,500 |
| TER | 1.61% |
| Yield | 0.50% |
| Manager | Liz Evans |
| FE Crown Rating | 4 Crowns |
Source: FE Analytics
"I like the fund because it has more exposure to faster-growing countries like Indonesia and Malaysia," Gleeson said.
"It’s also less China-heavy."
The £84.2m fund is also significantly underbought compared with the First State and Aberdeen behemoths, making it much more liquid and able to move further down the market cap spectrum to find value.
It has outperformed the IMA Asia Pacific excluding Japan sector and MSCI Asia Pacific excluding Japan index over one and three years, although it is second quartile over each period.
Since launch in June 2009, it has performed roughly in line with both the sector and index, picking up 71.91 per cent.
The sector has made 68.2 per cent while the index has gained 74.81 per cent, according to FE Analytics.
Performance of fund since launch vs sector and index
Source: FE Analytics
The portfolio is tipped towards consumer products, with 26 per cent of AUM in the sector.
Telecommunications & technology stocks make up the next highest weighting, with companies such as Samsung Electronics and Smart One Telecommunications featuring in the portfolio’s top-10 holdings.
Threadneedle American Smaller Companies
Outside of emerging markets, Gleeson says US smaller companies are likely to surge thanks to improving economic data in the world's largest economy.
Smaller companies, by their nature, are able to grow more quickly and by larger amounts than established blue chips.
However, while UK small caps have performed well over the last decade, he believes their US counterparts have more upside potential. He tips the Threadneedle American Smaller Companies portfolio for exposure to this area of the market.
| Name | Threadneedle American Smaller Companies |
|---|---|
| Fund size | £346.7m |
| Min. Investment | £2,000 |
| TER | 1.70% |
| Manager | Cormac Weldon and Diane Sobin |
| FE Crown Rating | 2 Crowns |
Source: FE Analytics
"It’s a really dynamic market and Threadneedle’s US team is really good," he said.
"There is a natural ceiling to what you can do in the UK before you have to start looking internationally."
"Companies in the US have 500 million people to sell to, so US smaller companies can get phenomenal results without ever looking outside their borders."
The Threadneedle portfolio has outperformed both the IMA North American sector and the S&P MidCap 400 index over one, five and 10 years.
The fund has slightly underperformed over three years, but has surged ahead in recent months.
Over the last five years, the fund has made 89.18 per cent, while the sector has picked up 72.66 per cent.
By comparison, the index has gained 61.76 per cent over the period.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Neptune Russia & Greater Russia
For investors with an extreme long-term time horizon and an appetite for risk, Chris Mayo, investment director at Wells Capital, says Russia could be an option.
However, he adds that the country can be a roller coaster ride and should by no means be a core holding in any portfolio.
"Over the last decade, Russia has had some of the fastest-growing funds in the world, but it has also had some of the biggest fallers," he said.
"It’s a long-term play: put your money away, shut the door and don’t look at it."
For exposure to the niche area, Mayo tips the Neptune Russia & Greater Russia fund, headed up by FE Alpha Manager Robin Geffen.
| Name | Neptune Russia & Greater Russia |
|---|---|
| Fund size | £374.3m |
| Min. Investment | £1,000 |
| TER | 1.80% |
| Manager | FE Alpha Manager Robin Geffen |
| FE Crown Rating | 2 Crowns |
Source: FE Analytics
The fund has had a bumpy ride recently, losing money over one and five years and underperforming the MSCI Russia Large Cap index over three.
However, the fund has picked up over the last six months, outperforming the index by nearly four percentage points.
The fund has also outperformed since launch in December 2004, making 228.6 per cent compared with 142.7 per cent from its MSCI benchmark.
Performance of fund vs index since launch
Source: FE Analytics
Anyone considering buying this fund should carefully consider their stomach for volatility: while it is more stable than the MSCI Russia Large Cap index, over the last eight years it has an annualised volatility of 29.72 per cent.
The FTSE All Share, by comparison, has a figure of 14.83 per cent.