Single-country BRIC funds for your portfolio
A number of the top performing regional emerging market funds have soft-closed, but there are few strong replacements ready to fill the void.
By Mark Smith, Reporter, FE Trustnet
Wednesday May 16, 2012
While recent FE Trustnet
research has highlighted the underperformance of BRIC funds compared with their benchmark and more general global emerging market rivals, there are some top performing single-country funds in the IMA unit trust and OEIC universe focused on either Brazil, Russia, India or China.
Here is a selection you may want to consider for your portfolio:
There isn’t a great deal of choice for investors looking for a specific play on Brazilian equities. The best-performing open-ended product is the $445m BNY Mellon Brazil Equity
fund. It has returned more than any of its competitors over the last three years and lost the least during the leaner times. However, with a minimum investment of $500,000 it is not aimed at retail investors.
The only fund that is is the £26.9m Allianz RCM Brazil
fund. The major drawback is that it has not yet built a three-year track record and since its launch at the end of September 2010 it has lost 22.37 per cent.
Brazil funds still need to be given more time to prove themselves and this lack of track record leads the majority of IFAs to recommend more general Latin American funds. These tend to be a proxy for the Brazil equity market anyway with an average exposure of 63 per cent.
Of the 16 open-ended funds focused on the region, the £428.9m Invesco Perpetual Latin America
fund has the strongest track record, with returns of 439 per cent over the last decade. Its nearest rival, the Scottish Widows Latin American fund, has returned 388 per cent.
Performance of fund vs index over 10-yrs
Source: FE Analytics
The Brazilian economy is dependent on commodity demand from other emerging economies, particularly China. Concerns of a hard landing have hampered returns in recent months and investors must be aware that funds of this type require a high tolerance for volatility.
Investors looking for a specific country play on Russia have five funds to choose from. Of these, the £494.8m Neptune Russia & Greater Russia
appears to have the best credentials.
In Robin Geffen
the fund has an FE Alpha Manager at its head who has proven his investment process across a variety of emerging market regions. Launched in December 2004, the fund also has the longest track record.
Performance of funds over 5-yrs
Source: FE Analytics
Data from FE Analytics
shows that the fund has returned 3.46 per cent over the last five years compared with a loss of 20.53 per cent from JPM Russia
, the only other competitor with a five-year record.
Our data also shows that the fund has been the most stable, with 27.69 per cent volatility over the last three years. HSBC GIF Russia Equity, the nearest competitor, scored 29.03 per cent.
A raft of planned reforms aimed at improving corporate governance coupled with an ever-rising oil price has attracted many investors to the region. Data from The Share Centre shows that the Neptune Russia & Greater Russia fund was the sixth-best selling fund in the 2011-12 tax year
However, investors must also be aware that any drop in commodity prices will greatly inhibit the region's prospects for growth.
The recent soft-closure of the five crown-rated £230m First State Indian Subcontinent
fund will come as a blow to any investors eyeing India. FE Alpha Manager David Gait’s
conservative approach has seen the fund return more money than any of its peers over the last one, three and five years.
Aberdeen’s approach is similarly conservative. The group’s Global Indian Equity
fund has the lowest volatility profile over the last three years, with an annual score of 26.72 per cent. It is also the second-best performer behind the First State fund over one, three and five years.
Performance of funds vs index over 5-yrs
Source: FE Analytics
India’s story is focused on the rise of the consumer, with pay-per-view TV, smartphone and automobile industries all offering classic high growth demographic investments.
Unlike the other three BRIC economies, there is plenty of choice for investors looking to make a specific play on the Chinese equity market. So much so in fact that the China/Greater China region gets its own sector from the IMA.
As with India, the most consistent performer in this sector, First State Greater China Growth
, is also not taking any new money and, as with India, Aberdeen has a very competitive fund able to take its place.
Over the last five years Aberdeen Global Chinese Equity
has been the most stable in the sector, with an annualised score of 21.82 per cent. By comparison the average China fund has a score of 25.68 per cent over the period. It has also outperformed the rest of the sector over three years, with a return of 48.96 per cent. The average fund has returned 16.28 per cent.
Commentators are divided as to whether China has avoided a hard landing. The worst-case scenario would see China’s GDP growth dip below 5 or 6 per cent, sparking an exodus of investors’ money from the region.
On the other hand, there are an equal number of fund managers that believe the disappointing growth figures for the first quarter of this year represent the low point for the Chinese economy and that the authorities will not allow it to slow any further.