Asian and emerging market equity funds rallied the hardest in November, research by FE Trustnet shows, representing somewhat of a turnaround in performance for these strategies.
The past year has seen emerging markets contend with some challenging conditions, owing to factors such as the trade dispute between the US and China as well as the impact of tighter US monetary policy and a stronger dollar.
FE Analytics shows that the MSCI Emerging Markets index has lost 6.96 per cent over 2018 so far and was hit especially hard during October, when global equities were subject to a sustained sell-off. November witnessed some improvement, however, with markets and funds able to make up some ground.
Source: FE Analytics
When looking at the performance of the Investment Association sectors last month, we see that the strongest gains came from the likes of the IA China/Greater China, where the average fund made a 5.86 per cent gain.
This theme of emerging markets outperforming the developed world is also reflected in the performance of the IA Asia Pacific Excluding Japan and IA Global Emerging Markets, up a respective 4.73 per cent and 4.36 per cent.
Ben Yearsley, director at Shore Financial Planning, said: “After recent falls had left emerging markets looking cheap on many metrics, at some point the risk-hungry investor was going to come back in.
“It appears that the sharp fall in the price of oil could be the catalyst, especially for the likes of India. For long-term investors who can ride out the uncertainty, today’s valuations are attractive.”
At the bottom of the table, from a sectoral point of view, are mainly fixed income sectors and UK equities. Our data shows the IA UK Index Linked Gilts peer group made a 3.75 per cent loss, followed by IA European Smaller Companies (down 2.14), IA UK All Companies (down 1.54 per cent), IA UK Gilts (down 1.48 per cent) and IA UK Equity Income (down 1.47 per cent).
Turning to individual funds and FE Analytics reveals that some members of the Investment Association universe were able to make double-digit returns in November 2018.
JPM India sits at the very top of the table with a 14.99 per cent total return. Managed by Rukhshad Shroff and Rajendra Nair, the fund is built around a high conviction portfolio of large-cap growth names such as Housing Development Finance, HDFC Bank and Tata Consultancy Services.
As can be seen from the below table, Indian equity funds had good month with 16 of November’s 25 best performing funds focusing on the country. It should be noted, however, that Indian equities have faced a challenging 2018 as a whole of only three of these funds – Aberdeen Global Indian Equity, Fidelity India Focus and Schroder ISF Indian Equity – are in positive territory; the others’ losses range from 5.06 per cent to 21.51 per cent.
Source: FE Analytics
Only one of the funds on the above list invests outside of emerging markets, although it has a focus on Asia. Praveen Kumar and Felicia Hjertman’s Baillie Gifford Japanese Smaller Companies fund made 10.80 per cent last month, bringing its 2018-to-date total return to 13.14 per cent.
At the bottom of the rankings is Schroder ISF Global Energy, which was down 9.72 per cent. Oil prices dropped by around 20 per cent over the course of November; North Sea Brent and US light crude had their weakest month for more than a decade as global oil supply outpaced demand.
In keeping with the weak performance of UK equities in another month marked by Brexit turmoil, IA UK All Companies funds such as Merian UK Mid Cap, Merian UK Dynamic Equity, Quilter Investors Equity 1, Orbis UK Equity and VT Cape Wrath Focus lost more than 5 per cent.
Similar themes were also witnessed in the Association of Investment Companies universe. FE Analytics shows the highest average return came from the IT Country Specialists: Asia Pacific sector, which was up by 6.82 per cent, followed by IT Asia Pacific – Excluding Japan and its 5.34 per cent average gain.
IT Utilities was next with a 5.33 per cent average total return, the IT Country Specialists: Other sector (which is home to just one trust: Gulf Investment Fund) made 5.20 per cent, IT Japanese Smaller Companies was up by 5.14 per cent and IT Biotechnology & Healthcare gained 5.11 per cent.
Establishment Investment Trust, which is run by Blackfriars Asset Management’s Henry Thornton, was the best-performing individual investment trust in November 2018 with a 14.85 per cent total return.
The trust is a member of the IT Flexible Investment sector and targets long-term growth, although “the preservation of capital is of primary importance to the investment objective”.
Source: FE Analytics
While just under 15 per cent of the portfolio is in UK equities, the bulk of its assets are investing in Asian emerging markets. China/Hong Kong is the biggest weighting at 21.9 per cent, followed by South Korea (11.7 per cent) and India (9.1 per cent).
The above table shows a similar emphasis to the Investment Association universe in that Indian equities specifically and emerging markets more generally made the months highest returns. However, some specialist mandates can also be seen – such as Geiger Counter (investing in companies involved in the uranium industry) and BB Healthcare Trust.