Out of all the funds in the IA Global Emerging Markets sector, Aberdeen Global Emerging Markets Equity has achieved the steadiest returns over the last decade, according to research from FE Trustnet.
This data was run following concerns about emerging market equities now that Trump has won the US election, given his rhetoric on trade tariffs and stance on expanding fiscal policy.
These fears have indeed been reflected in market behaviour. Over the two days following the US election result, the MSCI Emerging Markets index lost 4.62 per cent, falling twice as hard as both the S&P 500 and the FTSE 100 indices over this time.
Emerging markets have struggled to fully recover since this drop and, despite remaining this year’s top-performing market so far overall, it is now at the bottom rung of the ladder over the last month for its loss of 7.55 per cent.
Performance of indices over 1month
Source: FE Analytics
For those that still want exposure to this year’s golden market but want the smoothest possible returns, FE Trustnet has looked at the emerging market funds that have provided the steadiest returns during each year of the last decade.
As mentioned above, the $6.5bn (£5.2bn) Aberdeen Global Emerging Markets Equity fund came top of the list out of all funds in the IA Global Emerging Markets sector with a 10-year track record.
The Luxembourg-domiciled SICAV achieved a score of 19 out of 40, which was calculated by adding up the number of years it was in the top quartile over the last decade across four main risk metrics relative to its peers in the sector.
Its total score consists of a five out of 10 for its annualised volatility, Sharpe ratio (which measures risk-adjusted returns) and maximum drawdown (which measures the most money lost if bought and sold at the worst times). It also achieved four out of 10 for its downside risk, which measures the fund’s susceptibility to lose money during negative market conditions.
The fund is managed using a team-based approach and aims to achieve long-term growth through a regionally diversified portfolio of 62 stocks, with its top 10 individual weightings accounting for 33.6 per cent of the fund’s AUM.
Examples of its largest holdings include the likes of Samsung Electronics, Taiwan Semiconductor Manufacturing Company and Indonesian conglomerate Astra International.
Since the fund was launched in March 2006, it has returned 91.05 per cent compared to its sector average’s return of 32.22 per cent and its benchmark’s return of 43.1 per cent.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
It has a clean ongoing charges figure (OCF) of 1.29 per cent and yields 1 per cent.
In second place for its annual risk metrics over 10 years is Aberdeen Emerging Markets Equity, which scored exactly the same for its individual metrics apart from scoring a three out of 10 for its annualised volatility.
The fund is managed by the same team and adopts the same broad strategy, but is domiciled in the UK as opposed to Luxembourg. It is £1.7bn in size, has a clean OCF of 1.24 per cent and also yields 1 per cent.
When it comes to annualised volatility alone, Marlborough Emerging Markets is in joint first place with Aberdeen Global Emerging Markets Equity. Overall, it is in fifth place for its total score of 12, having earned three out of 10 for its maximum drawdown and downside risk but just one point for its Sharpe ratio.
The fund is only £8.2m in size and was launched in June 2004 but has been managed by the team at Marlborough for three years and eight months.
Over this time frame, it has returned 13.29 per cent, placing it in the second quartile relative to its average’s peer’s return of 6.75 per cent. It has also outperformed its index over this time frame by 5.28 percentage points over the same period.
In terms of its risk metrics over five years though, it is in the bottom quartile for its downside risk, annualised volatility and Sharpe ratio. This suggests that, while it has achieved strong risk metrics on an annual basis, the fund has fallen particularly hard when it has suffered bouts of turbulence.
When looking at risk-adjusted returns, AXA Framlington Emerging Markets, Invesco Perpetual Global Emerging Markets and GS Emerging Markets Equity Portfolio are all in joint third place after the Aberdeen funds, having been in the top quartile for their Sharpe ratios during four of the last 10 years.
Out of these, the fund with the highest overall score is Invesco Perpetual Global Emerging Markets, which has achieved 14 top-quartile risk measurements out of 40 in total.
Not only has it scored a four for its Sharpe ratio, it is also in joint first place alongside the Aberdeen funds for its annualised volatility of four out of 10. Elsewhere, it has a three for its downside risk and one point for its maximum drawdown.
The five crown-rated fund has been headed up by Dean Newman since 2007. Over this time frame it has returned 95.31 per cent, which is ahead of both its benchmark and sector average.
Performance of fund vs sector and benchmark under Newman
Source: FE Analytics
The £346m fund invests across a wide range of emerging market regions and currently has exposure to more than 10 individual countries. Its largest regional weightings are South Korea at 14.05 per cent, China at 13.53 per cent and Brazil at 10.9 per cent.
That said, Newman aims to provide long-term growth through a predominantly bottom-up stock-picking process and looks for companies that are well-run and able to provide a high level of return on invested capital. Its three largest individual holdings are Samsung Electronics, South African media group Naspers and Taiwan Semiconductor Manufacturing Company.
Invesco Perpetual Global Emerging Markets has a clean OCF of 1 per cent and yields 1.19 per cent.
For the final metric we used – downside risk – both JPM Emerging Markets and Baillie Gifford Emerging Markets Leading Companies beat the Aberdeen funds to the top spot with a score of five out of 10. In total, the funds scored 13 and 11 points respectively.
The former has been managed by Austin Forey since 1997, who was joined by co-manager Leon Eidelman in February 2013.
Since both managers have been at its helm, the £1.1bn fund has lost 10.89 per cent compared to its sector average’s loss of 13.21 per cent and its benchmark’s loss of 11.87 per cent.
Over the same time frame, it is in the second quartile for its maximum drawdown, annualised volatility, downside risk and Sharpe ratio.
The fund aims to provide capital growth through multiple processes, which include both bottom-up and top-down analysis. It has a clean OCF of 1.18 per cent and yields 1.19 per cent.
Baillie Gifford Emerging Markets Leading Companies has four FE crowns and has been managed by Will Sutcliffe since 2010. It is £487m in size and has an active share – which measures the percentage of stocks held outside of its benchmark – of 71 per cent.
As with most Baillie Gifford funds, the manager adopts a time horizon in excess of five years when choosing stocks. These are selected through a bottom-up process with the aim of choosing stocks with significant upside potential. Its largest holdings include Taiwan Semiconductor Manufacturing Company, Samsung Electronics and Tencent.
Over Sutcliffe’s tenure, it has returned 15.1 per cent, outperforming its sector average and benchmark by a respective 8.75 and 6.81 percentage points. Over the time period, it is in the top quartile for its maximum drawdown, the second quartile for its Sharpe ratio and downside risk and the bottom quartile for its annualised volatility.
Performance of fund vs sector and benchmark under Sutcliffe
Source: FE Analytics
Baillie Gifford Emerging Markets Leading Companies has a clean OCF of 0.82 per cent and yields 0.66 per cent.
While this article is indeed a celebration of the emerging market funds that have kept investors the safest over the last 10 years, the research also highlighted the names of a number of funds which have struggled when it comes to their risk metrics.
HSBC GIF Global Emerging Markets Equity failed to score a single point while Baring Global Emerging Markets and Templeton Global Emerging Markets scored just one point each.
Table of funds’ individual risk metric scores and overall scores over 10yrs
