Aberdeen and First State have dominated the performance and sales charts for many years, and a number of flagship funds have been soft-closed as a result of strong inflows in recent months.
There are, however, a number of viable alternatives that score strongly across FE’s three main rating systems: FE Crown Fund Ratings, which highlight excellent funds; the FE Alpha Manager rating, which highlights excellent managers; and finally the FE AFI, which reflects the views and opinions of leading industry experts.
Here are three of the least-known options:
Dimensional Emerging Markets Core Equity
- FE Crowns: 3
- FE Alpha Manager: No
- AFI portfolios: Cautious, Balanced, Aggressive
The likes of First State Global Emerging Markets Leaders and Aberdeen Emerging Markets both missed out.
As the name suggests, this fund gives investors core exposure to emerging markets by tracking a particular index.
However, unlike the vast majority of trackers, which replicate the index’s company weightings, Dimensional actively re-creates it.
The team believes there is too much weight given to large caps within indices, and therefore it has increased its relative exposure to small cap and value stocks to give investors a broader exposure to the specified market.
This way of investing has worked out well for Dimensional Emerging Markets Core Equity – one of the firm’s most popular offerings.
The fund’s active overlay has seen it significantly outperform the MSCI Emerging Markets index over the last five years, with less volatility.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
It has also beaten both the index and the IMA Global Emerging Markets sector average over a three-year period, and since its launch in 2004.
The fund requires a steep minimum investment of £100,000, but this comes down significantly for anyone investing through a platform such as Transact or Nucleus. It has an ongoing charges fee (OCF) of just 0.78 per cent.
Dimensional Emerging Markets Core Equity is team managed and so does not qualify for FE Alpha Manager status. It has three FE Crowns.
Martin Currie Asia Pacific
- FE Crowns: 4
- FE Alpha Manager: No
- AFI Portfolio: Aggressive
However, with the First State Asia Pacific Leaders fund looking to slow inflows, and many other popular options close to capacity, Martin Currie Asia Pacific could be one worth watching for the future.
The four crown-rated fund has a strong record over the long-term, with returns of 344.32 per cent over the last decade.
This compares with 303.4 per cent from the Asia Pacific ex Japan sector and 307.23 per cent from its MSCI AC Asia Pacific ex Japan benchmark.
The fund had a poor period in 2009 and 2010, which coincided with a change of manager and the appointment of Andrew Graham.
Since then, the fund is a top-quartile performer in its sector and has significantly beaten its benchmark as well.
Performance of fund vs sector and index since Mar 2011
Source: FE Analytics
Paul Danes joined Graham on the team earlier this month.
The fund is included in the AFI’s Aggressive portfolio and is also highly rated by FE Research, which has included it in the FE Select 100.
The team points out that the fund has a strong consumer focus at the moment, which investors may have to be patient with in the short-term.
"The consumer discretionary sector is where the fund is taking a real bet compared with the benchmark, as the managers believe the Asian economies are shifting towards a consumption-led model," the team said.
"While it is difficult to argue with this, it may take years before the fund reaps the benefits of its approach."
"In a difficult environment, this strategy could cause the fund to significantly underperform, as consumer-focused sectors are typically highly sensitive to underlying economic conditions."
Danes and Graham target quality companies, typically with low levels of debt.
The team divides its company assessment by sector rather than by country because it believes markets are closely interrelated and that, for example, a Korean electronics manufacturer’s closest competitor may be a Taiwanese one.
Consumer products currently make up 20 per cent of AUM. Financials is the biggest sector weighting though, at 33 per cent.
Around 20 per cent of the fund is currently invested in Australasia, which is high for a fund of this type. The Commonwealth Bank of Australia is a top-10 holding.
Martin Currie Asia Pacific requires a minimum investment of £1,000 and has an OCF of 1.75 per cent.
Schroder Small Cap Discovery
- FE Crowns: N/A
- FE Alpha Manager: No
- AFI Portfolio: Aggressive
It sits in the IMA Specialist sector, and while it does not specifically refer to emerging markets in its name, its objective clearly states that it looks to deliver capital growth by investing "in shares of smaller-sized Asian ex Japan and selected emerging market companies".
The fund is headed up by the highly rated pair of Matthew Dobbs and Richard Sennitt, who run Schroder Asian Alpha Plus and Schroder Asian Income. Neither is currently FE Alpha Manager-rated.
While the fund was only launched last year, and therefore does not yet qualify for an FE Crown Fund Rating, it has made enough of an impression to be included in the AFI Aggressive portfolio.
Dobbs and Sennitt have made a strong start: our data shows the fund has returned 16.68 per cent since its launch in March 2012, beating the average fund in the IMA Asia Pacific ex Japan and Global Emerging Markets sectors.
Performance of fund vs sectors and index since launch
Source: FE Analytics
Schroder Small Cap Discovery uses a composite benchmark that has not been made public.
However, as a point of reference, the MSCI Emerging Markets Small Cap index has made 8.86 per cent since the fund was launched.
The fund has around three quarters of its assets invested in emerging Asia, with the rest split between South America, the Middle East and Africa, and Australasia.
Top-10 positions include Brazilian textile firm Cia Hering and Siam City Cement Public Company.
The biggest sector weighting is currently consumer products, at 34 per cent, followed by financials.
The £21.2m fund requires a minimum investment of £1,000 and has an OCF of 2.04 per cent.