This area of the market is inherently more volatile than the likes of the UK and the US, which are heavily researched and lack the corporate governance issues that plague developing regions.
However, investors with a long-term horizon and a greater appetite for risk will want a fund that can give their portfolio that extra kick.
Here are three that fit the bill:
Aberdeen Global Emerging Markets Smaller Companies
Richard Troue (pictured), investment analyst at Hargreaves Lansdown, says the best high-growth emerging markets option is Aberdeen Global Emerging Markets Smaller Companies.
"For investors looking for high growth but broad exposure to emerging markets, I would go for Aberdeen Global Emerging Markets Smaller Companies," he said.
"You’ve got that assurance that the management team uses the same approach that has been successful for other Aberdeen funds. For instance they always concentrate on quality businesses that have strong balance sheets."
"They invest in companies that they think can survive through thick and thin, but you get that kicker for potential long-term gains from the smaller companies aspect," he added.
| Name | Aberdeen Global Emerging Market Smaller Companies |
|---|---|
| Fund Size | $3.4bn |
| Min. Investment | £1,500 |
| TER | 2.05% |
| Yield | N/A |
| Manager | Global Emerging Markets Team |
| FE Crown Rating | 5 Crown Rating |
Source: FE Analytics
The five crown-rated Aberdeen fund has been run by the company’s global emerging markets team since its launch in March 2007.
According to FE Analytics, over this time it has returned 153.12 per cent, making it the best-performing fund in its sector. Its benchmark, the MSCI Emerging Markets Small Cap index, has returned 86.3 per cent.
Performance of fund vs sector and index since March 2007
Source: FE Analytics
It also has a lower annualised volatility than its peers and benchmark over this time.
Aberdeen Global Emerging Markets Smaller Companies is also the best-performing fund in the sector over both three and five years, and the second best over the past 12 months.
Investors are paying for this level of performance, with a relatively high OCF (ongoing charges fee) of 2.05 per cent.
The portfolio has 75 holdings. Its largest regional weighting is to Brazil, which accounts for 13.98 per cent of the fund’s total $3.2bn assets under management.
It also has 11.4 per cent in Chinese equities and 9.1 per cent in South Africa.
Like most funds that tap in to a high-growth market, Aberdeen Global Emerging Markets Smaller Companies’ two largest sector weightings are financials and consumer staples, which make up 22.2 per cent and 22 per cent of the fund’s assets, respectively.
Jupiter China
Troue says that investors who want more direct exposure to an individual market should consider Jupiter China, despite the country's recent underperformance.
"The fund’s manager, Philip Ehrmann, tends to focus on themes that should be driving China’s future; areas such as environmental and social issues along with energy consumption."
"He also focuses on the re-balancing of the Chinese economy to a more consumer-based one."
"Because of that it is risky and should be invested in with a long-term view. It struggled in 2011 and 2012 with the Chinese slowdown and as panic around the re-balancing of the Chinese economy set in."
"However, I think economic growth probably needed to slow down to a more manageable rate."
"I think the re-balancing won’t just happen overnight and it will take time, so I think any concerns are slightly premature," he added.
| Name | Jupiter China |
|---|---|
| Fund Size | £201m |
| Min. Investment | £500 |
| TER | 1.83% |
| Yield | N/A |
| Manager | Philip Erhmann |
| FE Crown Rating | 1 Crown |
Source: FE Analytics
Erhmann has managed the £201m Jupiter China fund since its launch in October 2006.
Performance of fund vs sector and index since Oct 2006
Source: FE Analytics
The fund has underperformed the IMA China/Greater China sector and its MSCI Zhong Hua benchmark since then.
Jupiter China is third quartile over five years and bottom quartile over three.
The fund’s largest sector weighting is to Chinese financials, with the likes of China Construction Bank, Bank of China and China Pacific Insurance all cropping up in its top-10 holdings.
Aberdeen Asian Smaller Companies IT
Investors looking for a high-growth closed-ended vehicle to access emerging markets may wish to consider the five crown-rated Aberdeen Asian Smaller Companies Investment Trust.
Andy Merricks, head of investments at Skerritt Consultants, likes it because it offers access to Aberdeen’s emerging markets expertise, with the added growth potential of smaller companies.
| Name | Aberdeen Asian Smaller Companies IT |
|---|---|
| Fund Size | £415.6m |
| Discount/Premium | 4.75 |
| Gearing | 6% |
| Yield | N/A |
| Manager | Asian Equities Team |
| FE Crown Rating | 5 Crowns |
Source: FE Analytics
Aberdeen Asian Smaller Companies has beaten its bespoke benchmark of the MSCI Asia Pacific ex Japan index and the MSCI Asia Pacific ex Japan Small Cap index over one, three, five and 10 years.
It is also the best-performing portfolio in the IT Asia Pacific ex Japan equities sector over each of these periods.
The trust has returned 1,032.35 per cent over the last decade and its returns of 289.47 per cent over five years are four times more than those of its benchmark in this time.
Performance of trust vs sector and index over 5yrs
Source: FE Analytics
Aberdeen Asian Smaller Companies has also been considerably less volatile than the index over five years.
The trust's largest regional weighting is to Malaysia, accounting for 18.1 per cent of its total portfolio. Its benchmark has just 3.2 per cent.
Aberdeen Asian Smaller Companies is also overweight Hong Kong, Thailand and Singapore, but considerably underweight Australia – it holds just 1.5 per cent in the country compared with 25.9 per cent from the benchmark.