With this in mind, FE Trustnet asks the experts for their pick of the funds that, while small at the moment, could soon begin to attract significant inflows.
CF JM Finn Global Opportunities
Head of FE Research Rob Gleeson (pictured) expects many of the smallest funds in the IMA Global Emerging Markets sector to grow quickly as investors seek alternatives to the numerous soft-closed funds run by First State and Aberdeen.
He said: "CF JM Finn Global Opportunities has a large amount of emerging markets exposure and will likely do very well if global growth picks up, which will undoubtedly draw it to people’s attention."
The fund has five FE Crowns, an FE Alpha Manager in Anthony Eaton and has made it on to the FE Select 100.
The fund aims to profit from the ongoing process of globalisation, which Eaton hopes to achieve by investing in a large number of global stocks – 200 at present – the vast majority of which are small, experimental holdings.
As a result, the fund tends to do extremely well in rising markets but is hit hard when they crash. It was down 47.48 per cent in 2008 and 17.49 per cent in 2011, each figure almost double the losses of its sector average.
However, it has returned 159.82 per cent since launch in January 2004 compared with 84.33 per cent from its IMA Global sector average.
Calendar-year performance of fund vs sector
| 2013 returns (%) |
2012 returns (%) | 2011 returns (%) | 2010 returns (%) | 2009 returns (%) | 2008 returns (%) | |
|---|---|---|---|---|---|---|
| CF JM Finn Global Opportunities | 13.67 | 10.16 | -17.49 | 33.05 | 52.75 | -47.48 |
| IMA Global | 12.06 | 9.43 | -9.27 | 15.78 | 22.95 | -24.32 |
Source: FE Analytics
The fund has just £89.1m in assets under management (AUM). It requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.83 per cent.
Newton Emerging Income
Another emerging markets fund Gleeson is tipping for big things is Newton Emerging Income.
"The fund is relatively new but it is already attracting significant inflows," he said. "It is likely to become very large off the back of Newton’s reputation for income funds and the demand for emerging markets."
The £213.2m fund was only launched in October of last year so it is not yet eligible for an FE Crown rating and its limited performance data holds little significance.
It has got off to a good start, however, returning 16.33 per cent since opening for business compared with 8.48 per cent from its FTSE All World Emerging Index benchmark and just 7.18 per cent from its sector.
The fund requires a minimum investment of £1,000 and has an OCF of 1.75 per cent.
It is yielding 3.44 per cent.
It is co-managed by Jason Pidcock, who runs the five crown-rated, £3.73bn Newton Asian Income fund.
Pidcock has returned 51.4 per cent over the past five years, compared with 44.15 per cent from his peer group composite.
First State Worldwide Sustainability
Chris Spear, managing director of Spear Financial Management, says that another theme that has been growing in popularity is ethical funds. He tipped a First State fund with this mandate that is still open to new investors.
"One I’ve been keeping an eye on that I think has loads of potential but that is not on the radar is the First State Worldwide Sustainability fund. It is run by David Gait, who runs a number of successful emerging markets funds."
"I have a lot of time for First State, they have a good record of generating strong returns without taking on loads of risk."
"The fund’s ethical slant means it ticks quite a few boxes for a number of my clients. Its other sustainability funds have been so good I have even recommended them to clients who haven’t specified a fund with an ethical mandate."
"First State’s managers have done well across its range and have made a lot of good calls. If you look at First State Indian Subcontinent, that has held up well while a lot of its competitors have fallen by quite a lot."
First State Worldwide Sustainability has returned 16.38 per cent since launch in November 2012, compared with 12.61 per cent from its IMA Global sector. It has no specified benchmark.
More important is manager Gait’s long-term record – he has returned 784.99 per cent over 10 years compared with 514.2 per cent from his peer group composite.
Performance of manager vs peers over 10yrs
Source: FE Analytics
First State Worldwide Sustainability’s specified minimum investment is £50,000, but it is available for as little as £500 through the major platforms. It has an OCF of 2.1 per cent.
Two of Gait's other funds that have a similar mandate, First State Asia Pacific Sustainability and Global Emerging Markets Sustainability, were soft-closed in January 2012.
Invesco Perpetual Balanced Risk 8
Spear added: "Another fund that has done quite well is Invesco Perpetual Balanced Risk, which actually refers to three funds, Invesco Perpetual Balanced Risk 6, 8 and 10."
"This is still quite a small fund in the UK, but the US version is more than $1bn in size."
Invesco Perpetual Balanced Risk 8 has recently shot up to £60m and I think a few fund groups are going to start taking an interest in it soon."
"It has a really good concept: it keeps a close watch on the downside, and if you do that it doesn’t matter too much what it does on the upside."
"This has allowed it to be tremendously steady year-on-year despite all the problems recently, such as the Greek debt crisis and so on."
The fund has returned 4.82 per cent since launch in February 2012. It is in the IMA Specialist sector and has no specified benchmark, making comparisons with other funds difficult.
As a point of reference, the FTSE All Share has returned 12.59 per cent over the same period.
The fund is available with a minimum investment of £500 and has an OCF of 1.5 per cent.
CF Miton UK Multi Cap Income
Ben Willis (pictured), head of investment research at Whitechurch Securities, says his firm has invested in this fund since launch, thanks to the track record of manager Gervais Williams.
"Gervais Williams made his name in mid and small cap investing and in some ways it looks as if he is looking to replicate the performance of previous funds, only this time with the added benefit of an income focus as well," said Willis.
"It has good potential for both capital and dividend growth."
"It is currently only £60m in size, but it has done 30 per cent in the past year or so and with the huge demand for income at the moment it will only take a little bit more outperformance for it to start receiving big inflows."
"It would probably find it difficult to cope with much more than £1bn."
According to FE Analytics, the fund has returned 36.83 per cent since its launch in October 2011, compared with 26.14 per cent from its IMA UK All Companies sector. The fund has no specified benchmark.
Performance of fund since launch vs sector
Source: FE Analytics
It is yielding 4.46 per cent.
The fund requires a minimum investment of £1,000 and has an OCF of 1.77 per cent.