IA Global Emerging Markets funds run by Hermes, Newton and Invesco Perpetual have produced some of the sector's best numbers for a range of return and risk metrics over recent years but all have been trumped by a smaller companies portfolio.
Over the five years to the end of 2016, the average IA Global Emerging Markets member underperformed the MSCI Emerging Markets index with a 31.62 per cent total return. However, there are several funds that have beaten the index for returns and a number of closely watched metrics.
Performance of sector vs index between 1 Jan 2012 and 31 Dec 2016
Source: FE Analytics
As part of an ongoing series of studies, we looked at the sector’s average decile rankings when it comes to cumulative five-year returns to the end of 2016, those for the three most recent individual calendar years, annualised volatility, maximum drawdown, alpha generation, Sharpe ratio, downside capture and upside capture.
Over the following pages, we take a closer look at the five IA Global Emerging Markets funds with the best average decile ranking for these 10 metrics between 1 January 2012 and 31 December 2016 as well as revealing the top 20 in a table on the final page.
Newton Global Emerging Markets
Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016
Source: FE Analytics
The first fund making onto the shortlist with an average decile ranking of 2.8 and a 67.65 per cent five-year total return is Newton Global Emerging Markets. The £98.6m fund, which has been managed by Rob Marshall-Lee since September 2013, is in the sector's first decile for five-year returns, alpha generation, Sharpe ratio and upside capture. The only metric where the fund is below the fifth decile is for returns in 2016, when its 22.05 per cent gain put it in the bottom decile following a stellar year for emerging market equities. The five FE Crown-rated fund makes use of the global thematic overlay applied to all Newton funds, which examines forces of change that could act as market headwinds or tailwinds. On a stock level, companies with strong growth prospects, high barriers to entry and good corporate governance are preferred, with Naspers, British American Tobacco and Taiwan Semiconductor Manufacturing being the largest holdings. Newton Global Emerging Markets has a clean ongoing charges figure (OCF) of 0.95 per cent.
Hermes Global Emerging Markets
Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016
Source: FE Analytics
The five crown-rated Hermes Global Emerging Markets fund, run by FE Alpha Manager Gary Greenberg since 2011, is next with its 2.6 average decile ranking. Its 62.49 per cent five-year return is top decile, as is its alpha generation and Sharpe ratio. The $1.7bn portfolio is overweight China, Taiwan and India while its top holdings include Samsung Electronics, Tencent and Taiwan Semiconductor Manufacturing. Greenberg has a concentrated, benchmark-agnostic approach and the portfolio has a focus on consumer demand. The FE Invest team said: “Greenberg successfully navigated a tough period for emerging markets after taking over, helped by a focus on growing consumer demand. Meanwhile some previously top-performing funds fell by the wayside, failing to adapt to a change of leadership in emerging markets.” Hermes Global Emerging Markets has a 1.13 per cent OCF.
Templeton Emerging Markets Smaller Companies
Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016
Source: FE Analytics
With an average decile ranking of 2.5 and an 89.06 per cent five-year return, the $657.1m Templeton Emerging Markets Smaller Companies fund is in third place in this study. The fund is managed by Chetan Sehgal but he only took over in April 2017 after emerging market veteran Mark Mobius stepped back from management of this and 11 other portfolios. However, the process remains the same as for all Templeton emerging market products – a bottom-up approach that puts valuation at its heart and pays little attention to the top-down. Given its mandate to invest in smaller companies, this fund concentrates on under-researched stocks in under-researched markets and counts the likes of Bajaj Holdings & Investments, Apollo Tyres and Medy-Tox among its top holdings. It is in the IA Global Emerging Markets sector's top decile for five-year returns, alpha, annualised volatility, maximum drawdown, Sharpe ratio and downside capture. The five FE Crown-rated fund has an OCF of 1.66 per cent.
Invesco Perpetual Global Emerging Markets
Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016
Source: FE Analytics
Invesco Perpetual Global Emerging Markets boasts an average decile ranking 2.4 and first-decile numbers for five-year total returns, alpha and Sharpe ratio. Managed by Dean Newman since April 2007 and holding five FE Crowns, the £372.4m fund places strong emphasis on valuations and prefers businesses with a market position that should allow them to deliver a high level of return on invested capital. The biggest geographical allocations are to South Korea, China and Taiwan with Samsung Electronics, Naspers and Taiwan Semiconductor Manufacturing being the portfolio’s three largest individual positions. That said, Newman has been finding opportunities closer to home more recently. “We are currently finding the EMEA region particularly interesting because it offers a wide range of diversified companies with strong management teams operating in areas of growth,” he said in his latest update. Invesco Perpetual Global Emerging Markets has a 1 per cent OCF.
JPM Emerging Markets Small Cap
Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016
Source: FE Analytics
JPM Emerging Markets Small Cap, which is headed up by FE Alpha Manager Amit Mehta and Austin Forey, holds first place in our study after achieving an average decile ranking of 2.2 and a return of 69.51 per cent over the five years to the end of 2016. The $1.4bn, five FE Crown-rated fund is in the sector's first decile for five-year returns, alpha generation, Sharpe ratio and downside capture. Given its focus on smaller companies and the potential for higher risk, JP Morgan Asset Management says the fund may be appropriate for investors who have already built a globally diversified portfolio and are looking to potentially boost returns by adding to riskier areas. Its largest holdings are information technology companies EPAM Systems and Vanguard International Semiconductor and consumer staples stock Clicks Group. JPM Emerging Markets Small Cap has a 1.80 per cent OCF.
Source: FE Analytics