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Five global funds for an emerging markets rebound

25 February 2014

FE Trustnet looks at the global and global equity income funds and trusts that give investors exposure to battered developing markets such as China and India.

By Joshua Ausden,

Editor, FE Trustnet

The recent downfall of emerging markets illustrates just how quickly asset classes go in and out of fashion.

Following a decade-long bull market, emerging markets were all the rage in the late 2000s, and a number of fund launches in this area followed as a result.

Over the same period, sales of UK and other developed market equity funds paled in comparison.

However, slowing GDP growth, the unwanted effects of QE tapering and political/social unrest – compounded by high starting valuations – have seen both returns and investor demand diminish of late.

Performance of indices over 3yrs

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Source: FE Analytics

While industry experts continually tell investors and advisers that past performance is not a guide to the future, inevitably the money has followed the best-performing sectors of recent years.

Emerging markets specialists such as Aberdeen and First State have seen vast outflows over the past two years, while developed markets are once again having their place in the sun.

That said, an increasing number of fund managers with a global mandate have recently upped their exposure to developing regions, insisting that the long-term case for the asset class remains strong.

With starting valuations at 2008 lows on some metrics, the likes of M&G’s Randeep Somel and Unicorn’s Peter Walls believe that investors with a reasonable time horizon have been presented with an opportunity.

Emerging markets are the obvious choice for an investor with a similar view, but for anyone still wary of further short-term pain, here is a selection of global funds with an overweight in regions such as China, Brazil and India.


Global growth


Freddy Calquhoun, senior investment manager at JM Finn, expects more and more money to go into emerging markets as the year wears on.

He points to a high-profile global investment trust as a means for more cautious investors to get exposure to a rebound in developing nations.

“That’s how a lot of the people here are thinking – I think you’ll see a lot of people adding incrementally to emerging markets over the next six to 12 months,” he said.

“It’s hard to time the bottom of the market, but particularly towards the end of the year I think you’ll see an increase in demand.”


“One of the trusts that is playing the Asia Pacific and emerging markets theme at the moment is the Scottish Mortgage Trust. It has a big tilt towards China which the team sees good long-term potential in, believing it’s set for a soft-landing.”

“As well as playing regions, it also has a number of themes across the portfolio, such as cloud computing, online retailing and so on.”

In an interview with FE Trustnet in 2012
, manager James Anderson highlighted the technological advancement of healthcare as something he was looking to play in the trust.

Anderson was on a six-month sabbatical between July 2013 and January 2014, but is now back in charge of the £3.1bn vehicle.

“The manager who’s been in his place has done a very good job in his absence,” added Calquhoun.

According to FE data, the Scottish Mortgage Trust has steamed ahead of its sector over the past six months, with returns of 26.55 per cent.

This compares with 6.29 per cent from the IT Global sector and 4.74 per cent from the FTSE All World index.

This has helped push the trust further ahead over three, five and 10 years.

Performance of trust, sector and index over 10yrs

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Source: FE Analytics

Calquhoun points out the trust’s discount has narrowed recently, pushing it onto a slight premium at the time of writing.

This compares with a one-year average discount of 2.82 per cent.

However, given the calibre of manager and the fact that it should be seen as a long-term investment, Calquhoun says he is comfortable buying Scottish Mortgage IT on a slight premium.

The trust has ongoing charges of just 0.51 per cent.

Anderson currently has 16 per cent in China, 4 per cent in Brazil and India, and holds a number of US and European-listed stocks with indirect emerging markets exposure.

Chinese internet search engine Baidu and media company Tencent are among his largest holdings, with a combined weighting of more than 13 per cent.

Looking to open-ended funds, FE Alpha Manager Robin Hepworth’s Ecclesiastical Amity International fund has a natural bias towards Asian equities.

This, combined with the fund’s high levels of cash in 2012, led to its underperformance versus its IMA Global sector and FTSE World index benchmark over three years, but it remains a standout performer from a risk-adjusted return point of view over the long-term.

The fund currently has more than a third of its assets in Asia Pacific, with the majority of companies listed in Hong Kong and Singapore.


The manager has a great deal of expertise in this area, targeting quality defensive companies with strong corporate governance.

For investors interested in funds of funds, the obvious choice in this regard is Toby Ricketts’ Margetts Venture Strategy fund, which has a massive 65 per cent in Asia Pacific ex Japan and emerging markets portfolios.

Ricketts has had an emerging markets overweight and has contributed to his fund’s underperformance in recent years, and the loss of his coveted FE Alpha Manager rating in the latest rebalancing.

Margetts Venture Strategy remains ahead of its IMA Flexible Investment sector average and benchmark over five- and 10-year periods.

Performance of fund vs sector over 10yrs

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Source: FE Analytics

The fund has ongoing charges of 2.54 per cent, making it one of the more expensive funds of funds available to investors.

Top-10 positions include Somerset Global Emerging Markets, First State Global Emerging Markets Leaders, Aberdeen Asia Pacific and Aberdeen Emerging Markets.


Global equity income

Dividend-paying stocks tend to be associated with developed markets – particularly in the UK and Europe; however, there is an improving income culture across emerging Asia and beyond, with Brazil rated as particularly strong in this area.

In the IT Global Equity Income sector, the standout trust with an emerging markets focus is Bruce Stout’s Murray International IT, which has more than a third of its assets in them.

Mexico is his largest exposure at 10.3 per cent, followed by Brazil at 7.7 per cent, Taiwan at 5 per cent and Malaysia at 3.3 per cent.

ALT_TAG Stout (pictured) is generally very wary of valuations across developed markets, pointing to emerging markets as the only sector offering genuine value at the moment.

Murray International has been one of the most consistent trusts in the IT Global Equity Income sector, underperforming in the calendar year of 2013 – in part due to its overweight in emerging markets – for the first time for over a decade.

The trust’s underperformance has seen its premium fall from a high of 12.35 per cent to 5.49 per cent over the past 12 months.

While few experts would ever highlight a trust that’s trading on a premium to be a buying opportunity, this figure is lower than both its one- and three-year average.


Murray International IT has ongoing charges of 0.71 per cent, excluding performance fee.

Of all the open-ended global equity income funds, few currently have as much in emerging markets as Veritas Global Equity Income, which is managed by Andy Headley and Charles Richardson.

Asia Pacific currently has a 20 per weighting in the fund, with other emerging markets such as Asia and the Middle East contributing another 6.2 per cent.

The duo’s strong performance in recent years saw the pair made FE Alpha Managers in the latest rebalancing.

Performance of fund vs sector and index since launch

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Source: FE Analytics

FE data shows the Veritas fund has consistently outperformed its sector and benchmark, doing so with less volatility and a lower max drawdown.

The fund is a favourite with F&C’s Gary Potter and Rob Burdett, who hold it across their fund of funds range.

Potter says it’s particularly strong from an income point of view, highlighting it as a “sleep well at night” fund for someone approaching retirement.

The £2.4bn Veritas Global Equity Income fund has ongoing charges of 1.65 per cent.

It is currently yielding 4.4 per cent, and pays a dividend twice a year.

In an article later on this week, FE Trustnet will look at UK-listed stocks that will give investors exposure to a rebound in emerging markets if one materialises.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.