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The global funds making the biggest bets on emerging markets

27 November 2015

FE Trustnet takes a look at the global funds with significant weightings in emerging markets, and how well they’ve been performing over the longer term.

By Lauren Mason,

Reporter, FE Trustnet

Global funds are usually used as a way of achieving regional diversification in a portfolio and to hedge against country-specific headwinds.

The difficulty with choosing a fund that invests across such a wide range of countries though is that many will inevitably have weightings in less-than-desirable areas of the market.

Take emerging markets for instance, which even the most bullish investors have turned pale on in recent months following the collapse of commodity prices, China’s growth slowdown and impending rate rises from the Federal Reserve.

Performance of indices in 2015

Source: FE Analytics

It should come as no surprise that a majority of global funds currently have very little invested in developing regions, although it should be noted that the MSCI All Countries World index has only around 10 per cent in emerging market stocks.

According to FE data though, there are a handful of funds in the IA Global sector that do have significant weightings in both global emerging markets and Asia Pacific ex Japan – and achieved strong returns.

 

Source: FE Analytics

The global fund with the largest weighting in global emerging markets is the four crown-rated Baillie Gifford Long Term Global Growth, which has 20.13 per cent in the asset class as well as 2.06 per cent in Asia Pacific.

It has been managed by Mark Urquhart for more than a decade and, over this time frame which includes the financial crisis of 2008, the euro crisis of 2011 and the taper tantrum of 2013, it has more than doubled the performance of its peer average.

It has also achieved a top quartile alpha generation, which measures performance in addition to the benchmark, and a top-quartile Sharpe ratio, which measures risk-adjusted performance, over the same time frame.

Performance of fund vs sector and benchmark since launch

Source: FE Analytics

The high-conviction portfolio of 37 stocks consists of a 55.75 per cent weighting in emerging and non-emerging US equities, 20.13 per cent in global emerging equities and 15.87 per cent in European equities. It also has smaller weightings in the UK and in cash.

Baillie Gifford Long Term Global Growth has a clean ongoing charges figure (OCF) of 0.75 per cent.

Baillie Gifford International, which is co-managed by Charles PlowdenMalcolm MacColl and FE Alpha Manager Spencer Adair, has the next largest weighting in emerging market equities at 14.9 per cent, and it also has an 11.9 per cent weighting in Asia Pacific stocks.

The £539m fund additionally holds 52.4 per cent in North America, 19.9 per cent in Europe ex UK and 0.8 per cent in cash.

It is far less concentrated than Urquhart’s fund as it contains 97 stocks, and it has an active share of 92 per cent. Through their bottom-up approach, the managers have generated top-quartile returns over three, five and 10 years.

Baillie Gifford International has a clean ongoing charges figure of 0.69 per cent.


Another fund that has delivered a stellar performance while holding a hefty 13.2 per cent weighting in emerging markets is Artemis Global Growth, which has five FE crowns and is managed by Peter Saacke.

Over his 11-year tenure, the £466m fund has actually underperformed its sector average and its benchmark as it was hit particularly hard during the financial crisis, falling into the bottom decile in 2008 and more than halving the performance of its peers and the MSCI AC World index in 2009.

It has since redeemed itself though, having achieved top-decile returns over three and five years.

Saacke says that he has spent most of the year reducing his exposure to emerging markets, but given how far they have fallen, now is a perfect time to rebuild a significant overweight position.

“Having spent much of the last six months reducing exposure to emerging markets, sharply lower share prices have finally prompted us to begin ‘bottom fishing’,” the manager said in his most recent note to investors.

“Examples include Brazilian aircraft maker Embraer, Syndicate Bank in India, Siam Cement and China State Construction Engineering Corp. Regionally our biggest overweight is – once again – emerging markets, followed by Europe.”

Artemis Global Growth has a clean OCF of 0.88 per cent.

Next on the list is Henderson Multi-Manager Global Select, which also has five FE crowns and is managed by the Henderson Multi-Asset team. As such, the fund is able to invest across asset classes but currently holds only 6.3 per cent in alternative strategies, 2 per cent in alternative assets and 0.3 per cent in property, while the rest of its holdings are in equities.

The fund has 8.4 per cent in global emerging market assets and, since the team took over the helm last June, it has underperformed its sector average by 9.77 per cent having lost 2.33 per cent. For their exposure, they use the Vanguard Emerging Markets Stock Index fund.

Performance of fund vs sector and benchmark over tenure

Source: FE Analytics

However, it has a top-quartile annualised volatility and a top-quartile downside risk ratio, which estimates its potential to suffer a price decline in negative market conditions.

Henderson Multi-Manager Global Select has a clean OCF of 0.72 per cent.


Over in the IA Global Equity Income space, there are fewer options. In fact, there are only five funds in the sector that hold more than 1 per cent in both emerging market and Asia Pacific assets, according to our data.

The fund with the largest weighting in emerging markets is another Baillie Gifford fund. The one crown-rated Global Income Growth portfolio, which was launched by Dominic Neary in March 2010, has underperformed its sector average by just two basis points over his tenure, returning 54.36 per cent.

Since co-managers James Dow and Toby Ross joined the helm in February this year though, the fund has outperformed its peer group composite by 3.86 percentage points, providing a total return of 1.44 per cent.

The £344m fund currently holds 30.5 per cent in American Emerging equities, 25.66 per cent in the UK, 18.93 per cent in European equities, 12.5 per cent in global emerging market equities and 2.54 per cent in Japanese equities.

Baillie Gifford Global Income Growth has a clean OCF of 0.69 per cent and yields 2.9 per cent.

Saracen Global Income & Growth is next on the list for its highest weighting in emerging markets and Asia Pacific assets, holding 10 and 11 per cent in each respectively.

The two crown-rated fund fared particularly well during the taper tantrum of 2013, delivering a top-quartile return. It has also fared well since its launch in June 2011, outperforming its peer average by 4.92 per cent and its benchmark by 10.95 percentage points, returning a total of 42.09 per cent.

Performance of fund vs sector and benchmark since launch

Source: FE Analytics

Saracen Global Income & Growth has a clean OCF of 1.02 per cent and yields 2.9 per cent.

The only other fund in the IA Global Equity Income space that has a noticeably large weighting in emerging markets is CF Canlife Global Equity Income, which has a 6.3 per cent weighting in emerging markets and a 2.4 per cent weighting in the Asia Pacific region.

While the one crown-rated fund was in the third quartile during 2013 and 2014, it has moved up to the second quartile for its return year-to-date.

It also has a higher yield than the two global income funds previously mentioned at 3.48 per cent. CF Canlife Global Equity Income has a clean OCF of 0.94 per cent.

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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.