According to the study, the now closed five crown-rated First State fund is a top 10 holding with no less than 45 different IA funds, while the second most popular fund crops up in only 16 funds’ top 10 holdings.
Source: FE Analytics
FE Alpha Managers John Chatfeild-Roberts and Algy Smith-Maxwell’s Jupiter Merlin Worldwide Portfolio, six funds from FE Alpha Manager Bill McQuaker’s Henderson Multimanager range and Troy Spectrum are among the 45 funds which hold Tulloch’s £8.3bn fund in their top 10.
It’s not just a firm favourite with managers who have a large pool of assets though, as sub £20m-funds such as Discovery Managed Growth, Hurlingham Managed Growth and IFSL Brooks Macdonald Cautious Growth feature on the list of 45 holders as well.
It isn’t difficult to see why the fund is so popular.
According to FE Analytics, First State Asia Pacific Leaders has been the second best performing portfolio in the IA Asia Pacific ex Japan sector since its launch in December 2003 with returns of 407.44 per cent, beating its MSCI Asia Pacific ex Japan benchmark by more than 155 percentage points in the process.
Performance of fund versus sector and index since Dec 2003
Source: FE Analytics
Tulloch’s focus on high quality, cash generative businesses means that the fund has beaten the sector and index in nine out of the last 11 full calendar years, the exceptions being in 2009 and 2013.
Since launch, First State Asia Pacific Leaders has had the second best Sharpe ratio, which measures risk-adjusted returns, and the lowest maximum drawdown, which calculates the most an investor would have lost if they had bought and sold at the worst possible times, in the sector.
Though the fund turned in top decile returns of 19.07 per cent last year and is currently top quartile so far in 2015, one less fund counts it as a top 10 holding compared to this time in 2014 when the study was last conducted.
However, that is far better than can be said for funds run by Aberdeen, which have historically dominated the two emerging market sectors alongside First State over the past 10 years or so.
Our data shows 27 funds counted Devan Kaloo’s Aberdeen Emerging Market Equity fund this time last year, but now that figure stands at just nine this time around.
It means that while the now £2.2bn fund – which had been more than £4bn this time two years ago – was the second most popular emerging market fund in last year’s study, it is now the ninth most popular. No other Aberdeen funds feature on the list of most popular either.
Like First State, funds run by Aberdeen also focus on high quality companies with reliable earnings but while both First State and Aberdeen struggled in 2013, the latter didn’t bounce back in 2014.
While their longer-term numbers are still strong – Aberdeen Emerging Markets Equity has topped its sector over 10 years, for instance – over the last two years, Aberdeen’s four UK-based global emerging markets and Asia Pacific ex Japan funds have all failed to beat their respective sectors and benchmarks.
Source: FE Analytics
The difference in performance between First State and Aberdeen was explored in an FE Trustnet article last week. The major reason seems to have been positioning as the former has been overweight both China and India, while the latter was either underweight or neutral those regions and also had decent positions in the bombed out Russian and Brazilian markets.
While the wholesale selling of Aberdeen funds is one of the major surprises of the study, the huge popularity of passive emerging market and Asia Pacific ex Japan funds among fund of funds managers is another noteworthy point.
Investors could be forgiven for believing active managers have a decent opportunity to outperform in the developing world, given that it is such an inefficient market.
However, an FE Trustnet study last year showed that only a third of actively managed emerging market funds had beaten the index over five years and when you took the top-performing Aberdeen and First State funds out of the research, only 24 per cent had outperformed.
Clearly, a large proportion of fund managers decided to avoid active funds for their emerging market exposure as BlackRock Emerging Markets Equity Tracker, Vanguard Emerging Markets Stock Index and BlackRock Pacific ex Japan Equity Tracker are now the second, third and fourth most popular portfolios with the experts.
One actively managed fund which has shot up the popularity list, however, is FE Alpha Manager Nick Price’s five crown-rated Fidelity Emerging Markets fund, which is a top 10 holding in 13 funds of funds.
While a number of those funds are managed by Fidelity, notable backers of the £750m fund include Toby Ricketts’ Margetts Venture Strategy fund and a portfolio from David Hambidge’s Premier Liberation range.
Our data shows Fidelity Emerging Markets has been the sixth best performing fund in the IA Global Emerging Markets sector since its launch in June 2010 with returns of 36.20 per cent, comfortably beating its MSCI Emerging Markets benchmark by 20 percentage points.
Performance of fund versus sector and index since Jun 2010
Source: FE Analytics
Income remains a popular theme with managers looking for emerging market exposure within their portfolios as Jason Pidcock’s £4.8bn Newton Asian Income fund and Richard Sennitt’s five crown-rated Schroder Asian Income fund have kept their status on the most popular list.
They have been joined by Julian Mayo’s Charlemagne Magna Emerging Markets Dividend which, although it was only launched in June 2010, is now top 10 holding in eight funds. It has more than doubled the sector’s returns since its launch.
Jonathan Pines’ Hermes Asia ex Japan fund has gained a lot of attention recently as many have suggested it will be the fund to take First State and Aberdeen’s crown in the sector over the coming years.
Therefore, it shouldn’t come as too much of a surprise that it is now the seventh most popular emerging market fund with the experts as it crops up in 11 funds’ list top 10 holdings.
Pines’ value approach to Asian equities has meant the fund has been on a phenomenal run since it launched into the IA universe in October 2012.
Performance of fund vs sector and index since Oct 2012
Source: FE Analytics
The now $1.3bn portfolio has topped the sector over that time with returns of 60.12 per cent. As a point of comparison, the MSCI AC Asia ex Japan index has gained just 25.88 per cent over that same period.
Pines’ backers include FP Apollo Multi Asset Adventurous, Schroder MM International and Gary Potter and Rob Burdett’s F&C MM Lifestyle Balanced fund.
