Hargreaves Lansdown’s Richard Troue and Skerritt Consultants' Andy Merricks reveal the funds they would recommend to first-time investors who wish to access the sector.
First State Emerging Markets Leaders
Hargreaves Lansdown’s Richard Troue (pictured) says investors should still be turning to First State Emerging Markets Leaders for core emerging markets exposure.
"First State have developed a very successful approach over time and I rate the team managing the fund very highly," he said.
"It is a big old fund, but I expect them to continue to perform well. They tend to protect better in falling markets and, while they may lag in rising ones, for a core fund I’d consider that one."
| Name | First State Emerging Markets Leaders |
|---|---|
| Fund size | £4bn |
| Minimum investment | £1,000 |
| OCF | 1.58% |
| Yield | 0.49% |
| Manager | Jonathan Asante & FE Alpha Manager Glen Finegan |
| FE Crown Rating | Five Crowns |
Source: FE Analytics
The five crown-rated fund is one of the best performers in the IMA Global Emerging Markets sector over one, three and five years.
Since launch in December 2003, the fund has made 335.65 per cent, compared with 243.72 per cent from the sector and 250.87 per cent from the MSCI Emerging Markets index.
Performance of fund vs sector and index since launch
Source: FE Analytics
As mentioned by Troue, one of the fund's key selling points is that it protects well on the downside.
According to FE Analytics, over five years it is the best fund in the entire sector in terms of max drawdown – meaning the amount investors would have lost if they had bought at the highest point and sold at the lowest.
It is also one of the least volatile funds over this period, with an annualised score of 18.38 per cent.
Newton Emerging Income
Troue recommends this fund for investors seeking broad emerging markets exposure with a shot of income.
"It’s a broad fund that can invest across all emerging markets, so it’s suitable for the first-time investor," he said.
| Name | Newton Emerging Income |
|---|---|
| Fund size | £174.5m |
| Minimum investment | £1,000 |
| OCF | 1.75% |
| Yield | 3.42% |
| Manager | Jason Pidcock & Sophia Whitbread |
| FE Crown Rating | N/A |
Source: FE Analytics
He adds that the fund is a good one to use in combination with the First State portfolio as core holdings, and that investors can then diversify with single-country exposure.
Over the fund’s brief history, it has outperformed both the IMA Global Emerging Markets sector and the FTSE All World Emerging Markets index, returning 16.93 per cent since launch in October last year.
Performance of fund vs sector and index since launch
Source: FE Analytics
It is also one of the highest-yielding funds in the sector, with a payout of 3.42 per cent, behind UBS Emerging Markets Equity Income and Charlemagne Magna Emerging Markets Dividend.
JPM Emerging Markets
Troue says First State and Aberdeen are so far ahead of their competitors that it is difficult to recommend emerging markets funds not run by these two. However, he adds that it is inevitable that their popularity will lead to a need to stem inflows.
As that occurs, Troue says investors may wish to consider the £1.1bn JPM Emerging Markets fund, headed up by Austin Forey and Leon Eidelman.
"They’re not looking to shoot the lights out, but they are looking for good buy-and-hold companies," he said. "It would make quite a good core holding."
| Name | JPM Emerging Markets |
|---|---|
| Fund size | £1.1bn |
| Minimum investment | £1,000 |
| OCF | 1.68% |
| Yield | 0.40% |
| Manager | Austin Forey & Leon Eidelman |
| FE Crown Rating | Three Crowns |
Source: FE Analytics
The JPM fund has beaten the sector and the MSCI Emerging Markets index over 10 years, gaining 448.1 per cent in this time.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
However, it has lagged the index over three and five years and only just edged the sector over the longer period, according to FE Analytics.
The fund’s highest weightings are to financials and consumer products, with Samsung Electronics, Sberbank of Russia and China Mobile featuring in its top-10.
Somerset Emerging Markets Dividend Growth
Andy Merricks (pictured), head of investments at Skerritt Consultants, says the only fund he is turning to for emerging markets exposure is Somerset Emerging Markets Dividend Growth.
"They are small still, so they have capacity," he said. "The problem with the likes of First State and Aberdeen is that everyone goes in and they get too big and then you can’t use them anymore."
Merricks says the £173.5m Somerset Emerging Markets Dividend Growth fund is a good choice for someone who is making their first push into emerging markets.
| Name | Somerset Emerging Markets Dividend Growth |
|---|---|
| Fund size | £173.5m |
| Minimum investment | £2,000 |
| OCF | 1.36% |
| Yield | N/A |
| Manager | Edward Lam & Edward Robertson |
| FE Crown Rating | N/A |
Source: FE Analytics
The fund, which was launched in March 2010, is coming up to its three-year anniversary at the end of the month.
Since launch it has made 27.84 per cent while the sector and MSCI Emerging Markets index have gained 10.82 per cent and 10.49 per cent respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund’s highest country weighting is to South Africa, at 11.1 per cent. Its highest sector weighting is to financials, followed by consumer staples.
The fund is significantly less volatile than both the sector and index, with an annualised score of just 12.05 per cent over two years.
Schroder ISF Asian Total Return
Merricks says the Schroder ISF Asian Total Return fund provides exposure to some of the fastest-growing emerging countries without taking on unnecessary risk by investing in more volatile areas such as Latin America and Africa.
"It’s more of a steady eddy Asian play," he said. "[The managers] can go short if they need to. It is more defensive."
| Name | Schroder ISF Asian Total Return |
|---|---|
| Fund size | $2bn |
| Minimum investment | £1,000 |
| OCF | 1.99% |
| Yield | N/A |
| Manager | FE Alpha Manager Robin Parbrook & King Fuei Lee |
| FE Crown Rating | Five Crowns |
Source: FE Analytics
The five crown-rated fund has more than doubled the returns of the MSCI AC Asia Pacific ex Japan sector over three years and beaten the index over one.
Since launch in July 2008 the fund has made 140.33 per cent while the index has gained just 70.02 per cent, according to FE Analytics.
Performance of fund vs sector since launch
Source: FE Analytics
It sits in the Specialist sector, but has many similar holdings to other emerging markets funds, such as Taiwan Semiconductor Manufacturing. Its highest sector weighting is to consumer products, at 31 per cent.
The fund has 11.3 per cent in Australasia and 3.7 per cent in the Asia Pacific.