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The IA Global Emerging Markets funds in the lower deciles on almost every metric

12 May 2017

After looking at some of the leading emerging market funds, we now find out which members of the sector are lagging on a number of measures.

By Gary Jackson,

Editor, FE Trustnet

Templeton Global Emerging Markets is the IA Global Emerging Markets fund that is in the sector's lower deciles for a range of performance metrics, research by FE Trustnet shows.

In a recent article, we examined the peer group's best performers 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.

That study found that the IA Global Emerging Markets fund with the best average decile ranking on these 10 closely watched metrics was JPM Emerging Markets Small Cap, followed by Invesco Perpetual Global Emerging Markets, Templeton Emerging Markets Smaller Companies, Hermes Global Emerging Markets and Newton Global Emerging Markets.

However, when we flip the research on its head to find out which emerging market funds have the worst average decile ranking for the five years to 31 December 2016, another Templeton product tops the list.

Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016

 

Source: FE Analytics

The £15m Templeton Global Emerging Markets fund, which is headed up by emerging markets guru Mark Mobius, has an average decile ranking of 8.8.

Its 5.24 per cent total return over the five years in question is not the sector's lowest return but is 10th decile. It's also in the IA Global Emerging Markets sector's bottom 10 per cent of funds when it comes to alpha generation, annualised volatility, maximum drawdown, Sharpe ratio and downside capture.

Mobius is highly respected in the emerging markets field and has achieved good returns across his other funds, butTempleton Global Emerging Markets has underperformed for some time. FE Analytics shows the fund lagged both its average peer and the index in 2008, 2010, 2011, 2012, 2013, 2014 and 2015; that said, it outperformed by a wide margin in 2009 and 2016.


In all, 23 IA Global Emerging Markets funds have an average decile ranking of 6 or worse and all are shown in the table below.

 

Source: FE Analytics

While some sectors covered in this series of study had a high number of large funds in their list of those with the worst decile rankings, here only three have assets of more than £1bn.

The largest is Vanguard Emerging Markets Stock Index, which is £6.7bn in size and has an average decile ranking of 6.5. The fund is not in the bottom two deciles for any of the examined metrics; at the same time, it's best decile ranking is 5 (for returns in 2016 and annualised volatility).

The other large funds are Scottish Widows Emerging Markets (with assets of £1.3bn and a 7.5 average decile ranking) and Lazard Emerging Markets (which has assets of £1.1bn and a 6.2 average decile ranking).


Not all the funds on that list have failed to beat their average peer or the MSCI Emerging Markets index over the five-year time frame examined and Lazard Emerging Markets is a good example of this.

Between 1 January 2012 and 31 December 2016, the fund posted a 41.92 per cent total return - placing it in the sector's fourth decile and outpacing the index by almost eight percentage points.

The fund, which is managed by James Donald, is in the IA Global Emerging Markets sector's bottom decile for annualised volatility and downside capture but is first decile for upside capture and has fans in the analyst community.

Performance of fund vs sector and index between 1 Jan 2012 and 31 Dec 2016

 

Source: FE Analytics

Square Mile Investment Research & Consulting, which gives Lazard Emerging Markets an 'AA' rating, said: "This is a well run fund, that is managed by a highly experienced team. The process is constructed sensibly and reflects the heightened risks of investing in emerging markets.

"The team look to identify sensibly priced growth companies showing signs of strong or improving financial profitability. Their fundamental research discipline has worked well in uncovering valuation anomalies and helped isolate the managers from the swings in sentiment that can dominate these markets from time to time."

Other funds that appear on the list but have beaten their average peer and the MSCI Emerging Markets index include BlackRock Emerging Markets Equity Tracker and Irina Miklavchich's Threadneedle Global Emerging Market Equity fund.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.