Low-risk emerging market equity funds
According to FE Analytics, there are 25 funds across the IMA Global Emerging Markets, Asia Pacific Ex Japan and China/Greater China sectors with an FE Risk Score lower than that of the FTSE 100.
Of these 25, First State dominates the list of best-performing funds over five years, with the asset management firm accounting for six of the top-seven. Aberdeen Global Asian Smaller Companies takes first prize, however, with returns of 103.77 per cent over this period and an FE Risk Score of 69.
Performance and FE Risk Score of funds over 5-yrs
| Name |
5-yr returns (%) |
FE Risk Score |
| Aberdeen Global - Asian Smaller Companies |
103.77 |
69 |
| First State - Global Emerging Markets Leaders |
87.64 |
83 |
| First State - Asia Pacific Leaders |
84.41 |
81 |
| First State - Global Emerging Markets |
82.35 |
87 |
| First State - Asia Pacific |
81.2 |
81 |
| First State - Asia Pacific Sustainability |
80.52 |
68 |
| First State - Greater China Growth |
79.53 |
85 |
| Newton - Asian Income |
76.07 |
77 |
| Aberdeen Global - Chinese Equity |
66.38 |
85 |
| Schroder - Asian Income |
62.81 |
89 |
Source: FE Analytics
Emerging market bonds
"While investors have recognised the need to diversify their equity portfolios into emerging markets, few have re-assessed their fixed income portfolios in a similar way," said Brett Diment, head of emerging markets debt at Aberdeen Asset Management.
"Burdened by huge levels of debt, developed economies, including the UK and US, will struggle to return to the heady days of pre-crisis, credit-fuelled excess. Instead of lending more money to the most indebted nations of the worlds, investors should look to invest in the bonds of financially strong countries which are typically found in Asia and emerging markets."
"Of course, investing in emerging market bonds does bring with it risks and not every country is on as sound a footing as others, as illustrated by the current problems in eastern Europe."
"Arguably, though, the additional return available more than makes up for it. For example, the real yield (taking into account inflation) offered by 10-year UK gilts is around minus 2.8 per cent compared with a similar dated investment grade Brazilian government bond offering 5 per cent."
There are six funds in the IMA Global Bond sector with both a specific focus on emerging market debt and a track record of at least five years. The best-performing of these over this period is Investec - Emerging Markets Local Currency Debt, with returns of 99.85 per cent and a risk score of 54.
Performance and FE Risk Score of funds over 5-yrs
| Name |
5-yr returns (%) |
FE Risk Score |
| Investec - Emerging Markets Local Currency Debt |
99.85 |
54 |
| Invesco - Emerging Markets Bond |
67.92 |
38 |
| Threadneedle - Emerging Market Bond |
61.54 |
33 |
| M&G - Emerging Markets Bond |
57.97 |
36 |
| Schroder - ISF Emerging Markets Debt Absolute Return |
53.25 |
34 |
| Henderson - Emerging Market Debt Absolute Return |
7.77 |
10 |
Source: FE Analytics
FTSE-100 companies with an overseas focus
"Investing in UK-based global companies seems to us one of the most effective ways of accessing emerging markets," said Jan Luthman, who manages CF Walker Crips UK Growth and CF Walker Crips Equity Income.
"Unilever is just one example of a company increasing its sales to China and the Far East. Although this does of course dilute your exposure to emerging markets, it gives you a better balance as all of your eggs aren’t in one basket."
"Investing in a UK company gives you much more regulatory protection, the reassurance that all of the accountancy is up to UK standards, and perhaps most importantly of all, a UK valuation. A lot of UK-based companies seem to be priced at lower multiples than their emerging market counterparts, which seems back-to-front to me. So many Asian countries are growing by exporting to the West, where growth is slowing, while many companies in the West are focusing on increasing their sales to Asia, where growth is speeding up."
Back in November, Bruce Stout of Murray International Trust pointed out that many western companies get a large proportion of their earnings from overseas, saying: "Ten years ago global economists became very aware of the indebtedness and potential slowdown in the developed world and so growth models have been refocused on emerging markets."