Founded in 2007, the specialist emerging markets manager operates under the philosophy that smaller and cheaper funds are better equipped to meet clients’ needs.
Oliver Crawley, partner at Somerset, says charges across the industry have been far too high for too long.
"If you’re not ripping people off, they’re much happier to stick with you," he said.
To illustrate his point, Crawley points out that client turnover in his company is less than 1 per cent, and for good reason.
The £8.8m Somerset Global Emerging Markets fund is not facing the liquidity concerns of its larger competitors, which have recently begun to deter new investment in their flagship funds.
In a previous article, FE Trustnet found that the Somerset fund had outperformed competitors that are 50 times its size and more expensive.
The four crown-rated portfolio is third quartile since launch in December 2008, returning 90.47 per cent over the period, compared with 95.38 per cent from its sector.
However the fund, managed by Edward Robertson and FE Alpha Manager Mark Asquith, has improved in recent years.
Over three years, it has returned 36.38 per cent, which is a top-quartile figure.
It has also outperformed its MSCI Emerging Markets benchmark, which is up 24.8 per cent over the period.
Performance of fund vs sector and index over 3-yrs
Source: FE Analytics
The minimum initial investment on Somerset Global Emerging Markets is £2,000 and the total expense ratio (TER) is capped at 1.35 per cent – making it attractive compared with many of the larger names in the sector.
In terms of volatility, the fund is in line with the sector average, with an annualised figure of 17.89 per cent over three years.
Its managers are some of the best in the IMA Global Emerging Markets sector at adding value, with an Alpha score of 3.7 per cent over three years.
Although they have a shorter track record, the Somerset Emerging Markets Small Cap and Somerset Emerging Markets Dividend Growth funds have also hit the ground running.
Both portfolios are top-quartile over one year, returning 16.92 and 13.86 per cent respectively. By comparison, the sector has made 9.12 per cent.
Performance of funds vs sector and index over 1-yr
Source: FE Analytics
Although the small cap fund is closed to new investors, the £142.7m Dividend Growth fund is a long way from being shut. Crawley says Somerset will move to close it when it reaches £2.5bn.
"It’s difficult to run much more than that," he said. "We want to continue to access smaller companies. We don’t add a lot of value by owning companies like Samsung Electronics."
Aberdeen Emerging Markets and First State Global Emerging Market Leaders have £3.7bn and £3.4bn assets under management (AUM) respectively. The Aberdeen fund lists Samsung Electronics as its largest holding.
FE Trustnet previously tipped the Dividend Growth fund as one to watch in 2013.
Since launch in March 2010, it has made 23.04 per cent and ranks eighth in the sector, behind Aberdeen and First State’s emerging markets offerings, and the five crown-rated McInroy & Wood Emerging Markets fund.
It is currently yielding 3.3 per cent, making it one of the highest yielders in the sector.
Crawley adds that the fund is purely an emerging markets play, and unlike some of its rivals, will never invest in a UK-listed firm with indirect exposure.
"Part of this is because some funds are running too much money, so they have to employ it in other markets," he said.
He believes this trend is particularly concerning as many investors already have exposure to large UK companies – such as HSBC – in their UK equity funds. As a result, he says some investors unwittingly double, triple or even quadruple their exposure to a single stock.
The Dividend Growth fund targets companies with a growing and sustainable dividend yield. As a result, managers Edward Lam and Robertson stay out of countries such as India, which do not have a reputation for paying dividends.
The fund is also underweight China, but has an above-average position in Thailand.
The Somerset Emerging Markets Dividend Growth fund is one of the cheapest in the IMA Global Emerging Markets sector, with a TER of just 1.3 per cent.
The small cap portfolio is also comparatively inexpensive, carrying a TER of 1.55 per cent.
As a point of comparison, the majority of First State and Aberdeen funds have a TER of between 1.74 to 2.13 per cent, according to FE Analytics.
The Dividend Growth portfolio requires a minimum investment of £2,000.