Gleeson (pictured) says that although there are a number of pitfalls when it comes to investment trusts, they are the best option in this situation because all the top-performing open-ended funds have closed – or are in the process of closing – to new money. "With Aberdeen Asia Pacific the latest in a long line of emerging markets funds soft-closing, there’s a serious shortage of proven options out there," Gleeson explained.
"First State and Aberdeen have highly established teams and a wealth of resources that are absolutely crucial to succeed in this area."
"We’re considering investment trusts that offer access to these teams and resources as well as casting the net wider to find potential alternatives."
Aberdeen soft-closed its flagship Emerging Markets portfolio back in March this year, and First State has closed its Latin America, Indian Subcontinent and Greater China Growth funds to new money recently.
First State has also considered methods of slowing inflows in to its Emerging Markets Leaders and Asia Pacific Leaders portfolios in recent months.
Gleeson rates a select number of more specialised emerging markets funds, including the likes of Jupiter India and Schroder Asian Alpha Plus, which are in the FE Select 100.
However, he pinpoints a severe lack of competition among core emerging markets and emerging Asia funds and has decided to broaden the team’s universe as a result.
He says he is unwilling to reveal the trusts on his radar until he and his team have met with the relevant management teams, but confirmed that those run by Aberdeen and First State are on the list.
In anticipation of Gleeson’s decision, FE Trustnet highlights some of the options investors have across the IT Global Emerging Markets and IT Asia Pacific ex Japan sectors.
IT Global Emerging Markets
There are nine trusts in the IT Global Emerging Markets sector. Only three have a 10-year track record, while six have a five-year track record.
Neither First State nor Aberdeen currently run any core global emerging markets trusts, and so investors will have to back another fund house if they are considering this sector.
The standout contender when it comes to size and profile is without doubt Dr Mark Mobius’s £2.3bn Templeton Emerging Markets IT.
Performance of trust vs index over 10yrs
Source: FE Analytics
Launched in July 1989, the trust has consistently beaten its MSCI Emerging Markets benchmark.
It has returned more than 500 per cent over the last decade, and also comes out on top over one, three, five and 10 years.
Mobius has a heavy bias towards Asia, with around 50 per cent of assets invested in China, Hong Kong, Thailand and Indonesia alone.
He also has a significant weighting to Brazil and Turkey, at 14 and 7 per cent, respectively.
Financials and energy dominate the sector weightings, accounting for more than half of assets under management (AUM).
The trust has ongoing charges of 1.31 per cent and has no performance fee. It has no gearing.
While Mobius’s trust is the highest profile, it has fallen short of two much smaller rivals over 10 years – Genesis Emerging Market and the JP Morgan Emerging Markets trust, which have returned 582.8 and 578.99 per cent, respectively.
They also come out on top over three years.
Performance of trusts and index
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| JP Morgan Emerging Markets IT | 21.36 | 30.84 | 36.47 | 578.99 |
| Genesis Emerging Market | 16.4 | 30.21 | 26.53 | 582.8 |
| Templeton Emerging Markets | 17.83 | 23.52 | 50.11 | 547.75 |
| MSCI EM (Emerging markets) | 15.21 | 16.18 | 25.86 | 358 |
Source: FE Analytics
Austin Forey’s JPM trust is the least volatile of the three and tends to protect better against the downside during falling markets.
It is also the cheapest in terms of ongoing charges [1.27 per cent], but does have a performance fee.
Andrew Elder’s Genesis trust charges 1.69 per cent, with no performance fee.
Of the younger options out there, Charles Jillings’ Utilico Emerging Markets trust is the one that stands out.
It is the best-performing emerging markets trust over three years, with returns of 62.87 per cent, and is second only to the Templeton trust over five years.
It is also the cheapest, with an OCF of just 0.96 per cent.
The strong performance has resulted in the discount closing quite considerably.
According to data from the AIC, this figure is at 4.7 per cent, which compares with 5.8 per cent for Genesis Emerging Market, 9.5 per cent for Templeton Emerging Markets and 10.3 per cent for JP Morgan Emerging Markets IT.
For anyone who is a fan of income-paying emerging markets strategies, Richard Titherington’s JP Morgan Global Emerging Markets Income trust is a decent option.
It is worth pointing out that there is an open-ended version of the trust, which is still open to new money.
IT Asia Pacific ex Japan Equities
The best performers in this sector are dominated by those run by First State and Aberdeen.
The top-three in terms of total returns over three, five and 10 years are run by one of these groups.
First State boasts the Scottish Oriental Smaller Companies trust, which is now run by Angus Tulloch, and David Gait and Stuart Paul’s Pacific Assets trust.
The Pacific Assets trust invests predominantly in large caps. As with all of First State’s portfolios, the managers target quality, solid companies that have sustainable business models over the long term.
Gait and Paul's biggest regional weighting overall is to India, at 19 per cent, but the pair are significantly underweight China, with just 2.8 per cent invested directly in the country.
The trust has outperformed its MSCI Asia Pacific ex Japan index over the short, medium and long term, but it has really come in to its own in the past three years or so.
It has an OCF of 1.27 per cent and charges a performance fee of 15 per cent every year. It currently has no gearing, and is on a decent discount, at 8.1 per cent.
Scottish Oriental Smaller Companies, predictably, has a smaller cap focus. It had been run by Rippingall since 1995 until last month, and she led it to very strong returns.
Over 10 years it has made an impressive 826.88 per cent, and more than 230 per cent over five years.
However, it has been upstaged by Hugh Young’s Aberdeen Asian Smaller Companies trust, which is one of the very few closed-ended trusts to deliver in excess of 1,000 per cent over the last decade.
Performance of trusts vs index since June 2007
Source: FE Analytics
Such returns have pushed Young’s trust on to a premium of 5.5 per cent, while Scottish Oriental Smaller Companies IT is on a premium of 1.2 per cent.
Young also heads up the Edinburgh Dragon and Aberdeen New Dawn trusts, which are closed-ended versions of the Aberdeen Asia Pacific fund.
Both have beaten their MSCI AC Asia Pacific ex Japan benchmark over one, three, five and 10 years, and the Aberdeen Asia Pacific fund to boot.
They are both on discounts of around 7 per cent, and do not charge performance fees.
The Aberdeen Asian Income IT is a possibility for income-focused investors, as is Richard Sennitt’s Schroder Oriental Income trust.