Jupiter Global Emerging Markets, BNY Mellon Brazil Equity and Pictet Russian Equities are among some of the top-performing funds within the emerging market space that have managed to outshine their peers in the midst of a sector rally, according to data from FE Analytics.
Markets in the developing world suffered a torrid time over five years to the end of 2015, with the MSCI Emerging Markets index lagging behind the MSCI World by 70.11 percentage points with a loss of 16.96 per cent.
Performance ofindices over 5yrs to 2016
Source: FE Analytics
Confidence towards the developing world area continued to lag into 2016, with the sector bottoming at an 8.45 per cent loss on the 12 February year-to-date.
Now though, following a combination of a weakening dollar, dovish statements from the Federal Reserve and a move away from some underperforming developed markets, the MSCI Emerging Markets index has rocketed to return 43.6 per cent since this dip - 20 percentage points more than the FTSE 100 has returned over the same time frame.
During a period that has been particularly difficult for emerging market managers to outperform in, we took a look at the actively-managed funds that have managed to beat their peers and their benchmarks since 12 February this year.
In the IA Global Emerging Markets sector, 39 out of 83 funds have managed to outperform the MSCI Emerging Markets index since it bottomed in February.
The top-performing fund in the sector over this time frame is the £90m FP Henderson Rowe FTSE RAFI Emerging Markets fund, which has returned 60.77 per cent. However, the fund is passively-managed and tracks the FTSE RAFI Emerging index. It is also unavailable on most investment platforms.
The second top-performing fund in the sector is also largely unavailable to retail investors – NFU Mutual Global Emerging Markets is headed up by Matthew Bennett and has returned 54.23 per cent since 12 February.
Hot on its heels with a return of 53.7 per cent though is Ross Teverson’s five crown-rated Jupiter Global Emerging Markets fund, which is just £32m in size and has a concentrated portfolio of 50 holdings.
The fund has also performed well over Teverson’s tenure, returning 24.4 per cent compared to its average peer’s return of 16.2 per cent and its benchmark’s return of 18.11 per cent.
Performance of fund vs sector and benchmark under Teverson
Source: FE Analytics
While it boasts a top-quartile risk-adjusted return (as measured by its Sharpe ratio) over this time frame, it is in the bottom quartile for its annualised volatility and maximum drawdown (which measures the most potential money lost if bought and sold at the worst times).
The fund aims to achieve long-term growth through a relatively unlimited portfolio of both core emerging market and frontier market stocks – the manager is also able to invest across the cap spectrum and will hold smaller and medium-sized companies as well as larger stocks to maximise growth potential. These are chosen through a bottom-up stock selection process.
Other funds within the IA Global Emerging Markets sector that deserve an honourable mention for outshining in a rallying market include Lazard Developing Markets, BlackRock Emerging Markets and Legg Mason IF Martin Currie Emerging Markets.
However, investors should look beyond the sector in order to analyse the full range of options that are benefitting from the current emerging market rally.
Despite long-standing and well-documented political and corporate corruption over the years, Brazil has performed particularly strongly as a market since the developing world bottomed out in February as some of the headwinds that had dogged the country (such as continually falling commodity prices) have subsided.
There are only three specialist Brazil funds within the Investment Association universe and, as to be expected, all three have significantly outperformed the MSCI Emerging Markets index since 12 February. That said, none of them have managed to outperform the MSCI Brazil index over this time frame.
Performance of funds vs indices since 12 February
Source: FE Analytics
The closest contender though is BNY Mellon Brazil Equity, which is domiciled in Ireland and is $85.7m in size. Despite this, it is available to retail investors.
The one crown-rated fund has been managed by Rogerio Poppe since its launch in 2007. While it has achieved a 96.07 per cent return since emerging markets last bottomed, it has returned 24.29 per cent since its launch, which is almost 10 percentage points more than its MSCI Brazil 10/40 benchmark but 11.7 percentage points below the MSCI Emerging Markets index. It also has a maximum drawdown of 62.36 per cent over this time frame, which suggests it is far from suited to the more cautious investor.
The fund, which is able to invest without reference to its benchmark, is able to invest across the cap spectrum and will hold no more than 60 stocks at any one time.
While Brazil has undoubtedly been the strongest-performing individual emerging market since February, the second best-performing emerging market is Russia. Since emerging markets last bottomed, the MSCI Russia index has returned 58.84 per cent compared to the MSCI Emerging Markets index’s return of 43.6 per cent.
Performance of indices since 12 February 2016
Source: FE Analytics
There are a total of five specialist Russia funds within the Investment Association universe and, out of these, three have managed to beat the MSCI Russia index over the aforementioned time frame.
The strongest performer has been Pictet Russian Equities, which is domiciled in Luxembourg and is $194m in size.
At least two-thirds of its portfolio must be invested in companies that either have a registered office in the region or carry out most of their business activities there. These stocks are chosen through analysis and evaluation of individual company fundamentals.
While the fund has returned 72.77 per cent since 12 February compared to its MSCI Russia 10/40 benchmark’s return of 56.37 per cent, it has also outperformed it over three and five years. Over the last half-a-decade, it has made a loss of 7.10 per cent compared to its benchmark’s loss of 9.92 per cent.
In terms of India specialist funds, the top performer during the recent emerging market rally is Jupiter India which has returned 54.95 per cent compared to its MSCI India benchmark’s return of 39.5 per cent and the MSCI Emerging Markets index’s return of 43.6 per cent.
Performance of fund vs sector, benchmark and index since 12 February
Source: FE Analytics
FE Alpha Manager Avinash Vazirani has been at the helm of the five crown-rated fund since 2008 and is able to invest across the cap spectrum – the fund currently has a 48.6 per cent weighting in large-caps, a 35.9 per cent weighting in mid-caps and an 11.6 per cent weighting in small-caps.
The manager is able to make his own investment decisions without the guidance of the fund’s benchmark. Over his tenure, it has returned 163.94 per cent compared to its benchmark’s return of 51.68 per cent.
In terms of its risk metrics, it has a lower annualised volatility, a higher Sharpe ratio and a lower maximum drawdown than the MSCI India index.
Finally, in the IA China/Greater China sector, Baillie Gifford Greater China has taken the top spot with a total return of 52 per cent since 12 February.
The four crown-rated fund has been managed by Mike Gush since 2009 and, over this time frame, it has returned 165.48 per cent compared to its sector average’s return of 114.84 per cent and its MSCI Golden Dragon benchmark’s return of 136.94 per cent.
The £10.1m fund, which has been co-managed by Sophie Earnshaw since the start of the year, aims for growth with a five-year time horizon and does so through a portfolio of between 40 to 100 stocks at any one time. These are chosen through a bottom-up stock picking process which involves discussions with Baillie Gifford’s global investors as well as looking for significant upside potential in each holding.
It is in the second quartile for its annualised volatility and maximum drawdown over Gush’s tenure and it in the top quartile for its Sharpe ratio over this time frame.
Other China funds that have performed particularly well since February 12 include Henderson China Opportunities, Legg Mason IF Martin Currie China and HSBC GIF Chinese Equity.
