All analysts agree the region is cheap, but it has been for some time and the fear is that markets could get even cheaper.
Performance of indices over 3yrs
Source: FE Analytics
The region has bounced back in the past few weeks, raising hopes that the corner could have been turned.
However, Invesco’s Dean Newman suggests that the signal that markets were set to bounce back to wait for could be when earnings forecasts are revised upwards, meaning that there could be more pain to come.
The situation is ripe for a drip-feeding strategy, which has been shown to give investors superior results in volatile markets. Trying to time the perfect entry point ends up in a game of luck rather than skill.
For any regular savings plan low costs will give a massive boost to returns, meaning that picking a fund with lower charges should help over the long run.
Here we look at the emerging markets funds with the lowest ongoing chares under the new clean share class regime.
The cheapest option in the sector is unsurprisingly a tracker fund. The BlackRock CIF Emerging Markets Equity Tracker fund has ongoing charges of just 0.28 per cent.
The fund tracks the FTSE All Word Emerging Index. It has actually outperformed the benchmark over the past three years, although it has underperformed the average fund in the index.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
This has been a period in which the largest stocks have been out of favour though, and particularly those in China. As a tracker the fund is more exposed to these areas, and some managers are starting to see value in them as a contrarian area to invest in.
The Vanguard Emerging Markets Index charges 0.4 per cent while the L&G Global Emerging Markets has ongoing charges of 0.52 per cent.
The Dimensional Emerging Markets Core Equity fund is a more expensive option for those looking for a tracker, charging 0.78 per cent, although it has manage to replicate the returns of the MSCI Emerging market index closely, meaning investors haven’t been penalised by the higher charges.
However, most commentators suggest that trackers are a dubious way to invest in emerging markets at this point in time.
The mainstream indices have done poorly in recent years, and it is only the successful stockpickers who have managed to make positive returns at all.
The cheapest active fund available is the Baillie Gifford Emerging Markets Leading Companies fund, which has ongoing charges of 0.81 per cent.
The fund has been one of the better performers over the past year, falling 3.54 per cent as the index has lost 6.41 per cent.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
However, its longer-term track record is more middle-of -the road: the fund is third quartile over three years albeit marginally ahead of the sector.
The Baillie Gifford Emerging Markets Growth fund has a similar record over the past three years but has outperformed its sister fund over five and 10 years. It is available for ongoing charges of just 0.82 per cent.
The F&C Emerging Markets fund charges just 0.88 per cent but has been less successful. The fund is bottom quartile over the past 12 months and third over longer time frames.
Source: FE Analytics
For those looking for income from emerging markets the UBS, Newton and JPM emerging market income funds are both among the cheapest quartile. UBS Emerging Markets Equity Income charges 0.9 per cent, Newton Emerging Income 0.88 per cent and JPM Emerging Markets Equity Income 0.93 per cent.
Standard Life Global Emerging Markets and Schroder Global Emerging Markets are both available for less than 1 per cent.
Funds from First State and Aberdeen all cost more than 1 per cent except for the First State Global Emerging Market Leaders fund, as does the Fidelity Emerging Markets fund, the top performer in the recent downturn.
