JPM Emerging Markets Small Cap and Aviva Inv Emerging Equity MoM 1 are the most consistent IA Global Emerging Markets funds of the past decade, beating the sector average in nine of the past 10 years.
Of the 46 funds with a track record long enough to be included in the study, another four managed to beat the sector in eight of the past 10 calendar years.
Performance of fund vs sector
Source: FE Analytics
However, new investors may find it difficult to access these funds, with many of them having now soft-closed to new money.
As its name suggests JPM Emerging Markets Small Cap invests at least 67 per cent of its assets in smaller companies that are either domiciled or carry out the majority of their activity in emerging markets.
It is headed up by Austin Forey and FE Alpha Manager Amit Mehta, who use a fundamental, bottom-up stock selection process to identify high-quality companies with superior and sustainable growth potential.
The fund has made 342.3 per cent over the decade in question, compared with 187.9 per cent from the MSCI Emerging Markets Small Cap index and 127.9 per cent from the IA Global Emerging Markets sector. It is worth noting that more than one-third of these gains, 124.93 per cent, came in the first year of the 10-year period, as the fund recovered from the financial crisis. It lost 49.88 per cent in 2008.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It is $1.6bn in size and has ongoing charges of 1.81 per cent. However, it has now soft-closed to new money.
Aviva Inv Emerging Equity MoM 1 is run by T Rowe Price. The managers of the fund recently said that despite the turmoil in emerging markets, they expect growth in these regions to outpace that in the developing world. They added that the world is likely to be more uneven in future, with less correlation and greater divergence in performance among countries and in stocks within those countries.
“We feel that those countries that push forward with reforms could do well, while countries that do not may struggle,” they said.
“We will remain focused on quality companies, as we continue to believe that those leading firms will weather the tough environment and will, in fact, improve their competitive positioning.”
The managers added that the impact of higher US interest rates on emerging markets may turn out to be less significant than investors fear.
“These are reviving the concerns about lower capital flows – such as foreign direct investment – and weaker currencies within these emerging market countries,” they said.
“But broadly speaking, we think that most emerging market countries are in better shape to weather this volatility, with improved current account positions, higher foreign exchange reserves, higher real interest rates, and currencies that, in most cases, have fallen over the past several years.”
Aviva Inv Emerging Equity MoM made 243.85 per cent over the past decade. The £71m fund has ongoing charges of 1.46 per cent.
Next up are Aberdeen Emerging Markets Equity and its offshore version, Aberdeen Global Emerging Markets Equity.
The funds, run by Aberdeen’s global emerging markets equity team, focus on quality companies, in terms of business prospects, robust financials and sensible management, to allow them to take advantage of long-term structural advantages in the sector.
However, the team’s refusal to invest in business models it doesn’t understand led it to miss out on the progress of the BAT – Baidu, Alibaba and Tencent – stocks, which have driven much of the growth in emerging markets over the second half of the past decade, although both funds now hold Tencent in their top-10.
The £1.1bn Aberdeen Emerging Markets Equity fund made 177.87 per cent over the 10-year period. It has ongoing charges of 1.21 per cent, but is now soft-closed with a 2 per cent initial charge for new investors.
Aberdeen Global Emerging Markets Equity made 168.03 per cent over the same time. It is $3bn in size and has ongoing charges of 1.29 per cent.
Performance of funds over 10yrs
Source: FE Analytics
Robert Davy, who runs the £866.7m Schroder Global Emerging Markets fund, believes that emerging markets are inefficient, which provides strong potential for adding value through active fund management.
He uses a mixture of top-down analysis and bottom-up stock selection with the aim of adding value to performance from country and stock selection.
“We believe that it is inappropriate to apply a systematic style bias across so many countries at such different stages of development,” the manager said. “However, given our strong analytical resources, we would expect to generally have a bias towards medium-capitalisation stocks which should provide extra return potential.
“Our aim is to achieve returns with the minimum level of risk through a pro-active approach to risk control. We believe that applying a systematic, disciplined approach, with a strong team culture, increases our ability to add value.”
Schroder Global Emerging Markets made 152.8 per cent over the 10-year period in question. The fund has ongoing charges of 0.96 per cent.
While BlackRock Emerging Markets made the list, co-managers Gordon Fraser and Andrew Swan only joined in March and June 2017, respectively. The £167.2m fund made 162.41 per cent over the 10-year period in question. It has ongoing charges of 0.98 per cent.