Aberdeen and First State are the dominant players in this sector and have a particularly good track record during soft periods for the market.
In many cases this year, however, they have been outdone by a number of boutique funds that are unlikely to be on the radar of retail investors.
China
China has been in the headlines for all the wrong reasons so far this year, with worries over slowing growth and the shadow banking system prompting many experts to forecast an all-out crisis.
The MSCI China index is down almost 4 per cent so far this year and although the IMA China/Greater China sector has managed to grind out a very small positive return, many funds have lost in excess of 5 per cent.
There are some exceptions to the rule, however, with six managing returns in excess of 10 per cent year-to-date.
The best of these – the little-known $1.2m Matthews China Small Companies fund – has returned 16.79 per cent and has done so with less volatility and a lower max drawdown than both its sector average and MSCI China index.
Performance of funds vs sector and index in 2013
Source: FE Analytics
The Matthews fund, which has ongoing charges of 2.25 per cent, has a minimum investment of $500 and can be accessed via certain platforms for a much lower lump sum.
It was only launched last year and is headed up by Richard H Gao and Henry Zhang.
Other funds that have managed buoyant returns without having to take on too much volatility include Raymond Ma’s £8m Fidelity China Consumer fund, which is up 12.16 per cent so far this year, as well as the five crown-rated Invesco Perpetual Hong Kong & China fund, which has returned 15.91 per cent.
The First State Greater China Growth fund has also had a decent showing, delivering just over 7 per cent, though Aberdeen Global Chinese Equity has been a little more disappointing, underperforming the IMA China/Greater China sector average with returns of 0.17 per cent.
Asia Pacific ex Japan
While China is a big constituent of the MSCI Asia Pacific ex Japan index, countries in south-east Asia with more favourable fundamentals also make up a major chunk of the index.
The Asia Pacific market has lost slightly less than the MSCI China index in 2013, at -0.41 per cent, but funds in the IMA Asia Pacific ex Japan sector have actually fared worse than their counterparts in IMA China/Greater China.
Once again there are some standout performers. The tiny Hermes Asia ex Japan Equity fund leads the way, with returns of 14.33 per cent.
It has done this with an annualised volatility of 14 per cent, compared with 15.68 per cent from the index. This puts it in the top quartile of the sector for volatility over the period.
Performance of fund vs sector and index in 2013
Source: FE Analytics
The fund fared particularly well in the sell-off this summer.
It was only launched last year, and has £138m in assets under management (AUM). Jonathan Pines is its manager.
JOHCM has also done well so far this year, with both its Asia ex Japan Small and Mid Cap and Asia ex Japan funds beating the index and sector, with less volatility. The small to mid cap focused fund is up 10.15 per cent over the period, while the larger cap fund is up 6.6 per cent.
Melchior Asian Opportunities is another that has fared well, with returns of 8.99 per cent.
Of all the hugely popular Aberdeen and First State funds available to investors, the best performer by some distance is the Aberdeen Global Asian Smaller Companies fund. In spite of its small cap focus, it has been one of the least volatile funds in the entire Asia Pacific ex Japan sector in 2013, delivering positive returns of 8.14 per cent in the process.
The closed-ended version of the fund – Aberdeen Asian Smaller Companies IT – has lost 0.71 per cent so far this year, thanks to its widening discount. This goes to show how significant discount volatility can be when sentiment changes towards a certain market.
First State Asia Pacific, First State Asia Pacific Leaders and Aberdeen Asia Pacific, which have all attempted to slow inflows in recent years due to worries over capacity, have delivered positive returns so far in 2013, but no more than 3 per cent in each case.
Global emerging markets
The poor performance of Latin America, China and India so far this year has put a big strain on the IMA Global Emerging Markets sector, which has lost 3.73 per cent.
No fund has managed 10 per cent so far this year, with another minnow – Charlemagne Magna Emerging Markets Dividend – topping the tables with returns of 7.01 per cent. FE Trustnet profiled the fund, which includes an interview with manager Julian Mayo, in an article earlier this year.
Another income-focused fund – Standard Life Global Emerging Markets Equity Income – came second, with returns of 5.81 per cent. Dividend-paying companies tend to be more defensive in nature than those purely focused on growth, which helps to protect capital during tough times.
The Charlemagne and Standard Life funds have a max drawdown of 13.04 and 12.4 per cent in 2013 respectively, which compares with 17.07 per cent from the MSCI Emerging Markets index.
Performance of funds and index in 2013
Source: FE Analytics
Other little funds such as Hermes Global Emerging Markets and Standard Life Global Emerging Markets Equity have also fared well, managing in excess of 3.5 per cent.
Once again, Aberdeen’s small cap focused portfolio – Global Emerging Markets Smaller Companies – has managed to protect against the downside very effectively and deliver outperformance in the process. It is up 5.58 per cent in the period.
By far the biggest and highest-profile funds in the IMA Global Emerging Markets sector are Aberdeen Emerging Markets and First State Global Emerging Markets Leaders, which have combined AUM of around £7.6bn.The First State fund has fared relatively well, but the Aberdeen fund has underperformed its benchmark so far in 2013, which is surprising given that it usually fares so well during tough times.
Performance of funds vs index in 2013
Source: FE Analytics
As the graph above shows, it actually fell further than the market in the summer sell-off.
Manager Devan Kaloo explained the reasons for this underperformance in a recent FE Trustnet article.
Other regions
India and Latin America have been the worst-hit areas of the emerging markets universe so far this year, with both losing around 10 per cent. Worries over the end of quantitative easing, tightening in the likes of India and Brazil, and social unrest across a number of countries have all contributed to the poor run.
No fund that focuses on these two markets has managed to break even this year, though in a more familiar turn of events, Aberdeen and First State have protected the most effectively.
First State Latin America, which requires investors to pay an initial charge, is by far the best performer in its field, with negative returns of 4.87 per cent, while the First State Indian Subcontinent and Aberdeen Global Indian Equity funds lead the way in the Indian market, with losses of 5.66 and 5.17 per cent, respectively.
The biggest challengers have been Invesco Perpetual Latin America and Schroder ISF Indian Equity.