JPM Emerging Markets Small Cap and the GS Emerging Markets CORE Equity Portfolio are the most consistent IA Global Emerging Markets funds of the past decade, beating the most common benchmark in the sector – the MSCI Emerging Markets index – in eight of the past 10 calendar years, and their average peer in nine.
Of the 78 funds with a track record long enough to be included in the study, another three also beat the index in eight of the past 10 calendar years, but weren’t as successful as the JP Morgan and Goldman Sachs strategies when compared with the average peer.
Performance of funds vs sector and index
Source: FE Analytics
All the GS CORE Equity Portfolios are run using the same strategy, which involves screening companies on four themes: quality – meaning consistent revenue streams, sustainable business models and strong governance; fundamental mispricings – meaning a valuation that underestimates their true worth; themes and trends – they may be tapping in to long-term growth drivers that the market may have overlooked; and sentiment – this involves figuring out the general mood among other investors, which the group believes can help to indicate future performance.
When the portfolios are being put together, the group tests many combinations of stocks, with the aim of finding one that maximises the portfolio’s expected return for a given level of risk.
Goldman Sachs recently released a statement saying it was neutral on emerging market equities in the near term.
“Attractive opportunities in select emerging markets and companies remain given the underperformance last year,” it said.
“In China, industries that are strategically aligned with the administration’s development goals and priorities can expect considerable policy support and growth.”
It added that the expected increase in US interest rates could be less of a headwind for emerging markets than in previous cycles, as current accounts were now stronger, reducing fears of capital outflows.
“We are paying close attention to any geo-political tensions that may cause gyrations in the markets as well,” said the group.
GS Emerging Markets CORE Equity Portfolio has made 133.7% over the past decade, compared with 95.8% from its MSCI Emerging Markets benchmark and 89.7% from the sector.
Performance of funds vs sector and index over 10yrs
Source: FE Analytics
The JPM Emerging Markets Small Cap strategy is managed by Amit Mehta and Austin Forey, who make use of the group’s emerging markets & Asia Pacific equities research team. This is made up of 40 analysts based in eight locations around the world.
Mehta and Forey use a bottom-up approach, aiming to identify high-quality companies with superior and sustainable growth potential that can compound earnings over the long term.
They have a high-conviction strategy, with position sizes driven by the managers’ confidence in each company rather than its market capitalisation.
“Ultimately, we are looking to find the large caps of tomorrow,” said Mehta and Forey. “We believe that small-cap equities offer better exposure to the real consumption story in emerging markets.”
JP Morgan had a similar view on the near-term prospects for emerging markets as Goldman Sachs, taking an overall neutral position and saying the sector may not be on track for a sustainable post-Covid recovery until the second half of the year.
It also agreed that a tightening of US monetary policy would be less of a problem for emerging markets this year than it was in 2013, even though many countries in the region maintain a heavy reliance on external financing.
“India’s current account position has improved since 2013, and China, Taiwan and South Korea – which together with India make up nearly 75% of the MSCI Emerging Markets index – have strong current account positions and low external debts, and so should be less vulnerable,” said a statement from the group.
“If tapering proves a challenge for emerging markets this time around, it is likely to be felt more in areas of emerging market debt than in emerging market equities.”
JPM Emerging Markets Small Cap made 201% over the 10-year period in question. The fund has a performance fee of 10% a year on any returns above that of its MSCI Emerging Markets Small Cap benchmark.
| Name | Fund size (£m) | OCF (%) |
| GS Emerging Markets CORE Equity Portfolio | 2246.5 | 0.85 |
| JPM Emerging Markets Small Cap | 1387.6 | 1.06 |