Stewart Investors Global Emerging Markets Leaders, Schroder Asian Income and Aberdeen Asia Pacific Equity have been among the best emerging market funds at recovering their losses, according to FE data, as they have taken the shortest period of time to bounce back from their biggest falls over the past decade. 
Having been one of the most hated areas of the global equity market over the past six or so years thanks to China’s growth slowdown, falling commodity prices and a strengthening US dollar, the developing world has seen somewhat of renaissance so far in 2016.
As a result of signs of stabilisation in China, a rebound in the oil price and a general increase in investor sentiment, emerging market equities have rallied from their very low valuations in mid-February to deliver a 13 per cent return.
Performance of indices since February 2016
Source: FE Analytics
A number of industry experts believe this rally has legs as well, such as Neptune’s Robin Geffen.
“There is so much cynicism, despair and concern built into equity prices in emerging markets which means I don’t think there is going to be another big puke,” Geffen said.
“I think the ‘lower for longer’ interest rate scenario is helpful in emerging markets too, so I think we may look back at 2016 as a year when people should have been buying emerging markets rather than selling them.”
This has (partly) been borne out in the latest FE Trustnet poll in which more than 1,700 have so far voted. It found that 41 per cent of FE Trustnet readers have been upping their exposure to emerging markets thanks to the recent rally.
Following on from a study last week, in this article we look at funds in the IA Global Emerging Markets and IA Asia Pacific ex Japan sectors that have had the shortest recovery period over the past 10 years for those looking for exposure to the asset class.
The recovery period shows the number of months an asset takes to fall to its largest maximum drawdown date and then recover to make a positive gain. For example, the IA Global Emerging Markets sector average has a recovery period of 29 months over the past 10 years as its journey from peak to trough and back up to peak over the past 10 years lasted between October 2007 and March 2010.
Performance of sector over 10yrs
Source: FE Analytics
When we conducted this study for the UK sectors, the funds with the shortest recovery periods tended to be those that rallied the hardest in 2009 following the global financial crisis.
However, when looking at the IA Global Emerging Markets and IA Asia Pacific ex Japan sectors, the best funds at recovering losses have been those that protected capital most effectively during the crash and therefore didn’t have to deliver barnstorming gains to get back in the black.
According to FE Analytics, the developing world-focused funds with the shortest recovery periods over the past 10 years have been Stewart Investors Global Emerging Markets and Stewart Investors Global Emerging Markets Leaders at just 19 months.
Both portfolios began their maximum drawdown period in December 2007, ended their maximum drawdown period in November 2008 and recovered into positive territory by July 2009.
Funds’ recovery period and total returns over 10yrs
Source: FE Analytics
Stewart Investors (formerly First State) has come out very well from this research.
Managers at the firm are renowned for their focus on quality-growth stocks and preference companies with good social and environmental track records.
This means that though Stewart Investors’ funds can lag in widely rallying markets (all of its five funds in the two sectors with a long enough track record underperformed in 2009, for example), they have come into their own during more difficult times.
Indeed, the funds with the third, fourth and fifth shortest recovery periods over the past decade are Stewart Investors Asia Pacific Sustainability (20 months), Stewart Investors Asia Pacific (20 months) and Stewart Investors Asia Pacific Leaders (22 months).
All five funds have significantly outperformed their respective peers and benchmarks over the past 10 years, but have done so with a considerably lower maximum drawdown, annualised volatility and superior Sharpe ratio.
All told, it is no surprise that Stewart Investors is seen as the best fund group for emerging market equities. However, it must be noted a number of big name managers have stepped back from day-to-day management and all of the group’s major funds are now closed to new investors.
The best non-Stewart Investors Asia Pacific or emerging market fund for recovery losses has been Richard Sennitt’s Schroder Asian Income portfolio.
Its recovery period has been just 23 months – October 2007 through to September 2009.
According to FE Analytics, the £785m fund has been a top quartile performer over the past decade with returns of 127.15 per cent, beating its MSCI AC Pacific ex Japan benchmark by some 40 percentage points in the process.
Like the Stewart Investors funds, its short recovery period was fuelled by its top quartile numbers in 2008. Though it underperformed in 2009, Schroder Asian Income still made 49 per cent that year. This performance profile is further highlighted by the fact the fund sits in the sector’s top quartile for maximum drawdown, volatility and risk-adjusted returns.
Schroder Asian Income features on Square Mile’s Academy of Funds, with the team liking Sennitt’s focus on valuation.
“There are quite a lot of things to like about this fund. Foremost, we think highly of the manager, who is a skilled investor and has followed the Asian markets for a considerable amount of time,” Square Mile said.
“He has a fine appreciation of the nuances of investing in these markets and the opportunities that can emerge when investors throw the baby out with the bath water in volatile periods. He maintains a sensible investment approach with a strict focus on company fundamentals and valuation levels.”
It is also worth noting that the fund, which yields 4.3 per cent, has also only had to cut its dividend once since 2007.
Schroder Asian Income’s dividend history (in pence per unit)
Source: FE Analytics
The other funds to make up the list include Newton Asian Income, Aberdeen Asia Pacific Equity and Fidelity South East Asia.
Looking at the other end of the spectrum and FE data shows there are two funds in the two peer groups which is yet to reach its previous high prior to beginning of its maximum drawdown – Baring Global Emerging Markets and GS Growth & Emerging Markets Broad Equity Portfolio.
Both funds’ recovery periods are 102 months and counting.