Like all equity markets, they were hit hard by the Lehmans crash and its devastating aftermath, as well as the eurozone crisis, which culminated in a significant sell-off in the summer of 2011.
Emerging markets have also had to contend with a number of sector- and country-specific issues since the latter parts of 2008, including fast-rising inflation in Brazil, social unrest in the likes of South Africa and Thailand, and most recently slowing growth in India and China.
Our data shows that the IMA Global Emerging Markets sector has returned 22.37 per cent over this time – less than both the IMA Global and IMA UK All Companies sectors.
Performance of IMA sectors over 5yrs
Source: FE Analytics
While emerging markets have had a rough time of late, a number have still managed to deliver stellar returns over the past five years.
Our data shows that only four funds in IMA Global Emerging Markets and IMA Asia Pacific ex Japan – which is dominated by portfolios with an emerging markets focus – have more than doubled investors’ money since September 2008.
The two best both concentrate on smaller companies, which have outperformed their large cap rivals over the period. Topping the charts is Aberdeen Global Asian Smaller Companies, which has returned a massive 137.1 per cent, followed by Aberdeen Global Emerging Markets Smaller Companies, with 107.93 per cent.
While admittedly small caps have had a good run, the funds have thrashed their respective benchmarks over the period, as well as their sectors.
Performance of funds and indices over 5yrs
Source: FE Analytics
The only other emerging markets funds that have managed to return more than 100 per cent are Newton Asian Income and Schroder ISF Asian Total Return, which have both delivered around 106 per cent.
Unsurprisingly, First State – which was originally a boutique that concentrated solely on emerging markets – also fared very well in the study, with three funds making it into the top-15 list. The pick of the bunch is the First State Asia Pacific Sustainability fund, which has managed 98.59 per cent over five years.
Top-15 best-performing emerging markets funds over 5yrs
| Name | 5yr |
|---|---|
| Aberdeen Global - Asian Smaller Companies | 137.1 |
| AXA - Framlington Biotech |
132.86 |
| Aberdeen Global - Emerging Markets Smaller Companies | 107.93 |
| Newton - Asian Income | 106.67 |
| Schroder - ISF Asian Total Return | 106.18 |
| First State - Asia Pacific Sustainability | 98.59 |
| Pictet - Premium Brands | 97.49 |
| Schroder - Asian Alpha Plus | 94.43 |
| Baring - ASEAN Frontiers | 88.8 |
| Melchior - Asian Opportunities | 84.11 |
| First State - Global Emerging Markets | 83.61 |
| First State - Global Emerging Markets Leaders | 82.68 |
| Schroder - Asian Income | 81.96 |
| Pictet - Security | 80.13 |
| AXA - Framlington Health | 79.86 |
| IMA Global Emerging Markets | 22.37 |
Source: FE Analytics
The study also included the handful of emerging markets funds that sit in the IMA Specialist sector. Among those that made it into the top-15 include Baring ASEAN Frontiers, which has made almost 89 per cent.
While in other articles in the series the best-performing funds have often been those that have shot the lights out in rising markets, when looking at emerging markets it has been those that have effectively protected against the downside that have fared best over the last five years.
Emerging markets rebounded strongly in 2009 and 2010, but have not rallied in the same way as their developed market rivals in the last couple of years, for some of the reasons mentioned earlier. When a fund loses money one year it has to work twice as hard the next to make it back, and so given that the five-year period has seen a number of steep sell-offs, it is hardly surprising that those with a lower volatility and a lower max drawdown have done best.
Seven of the 10 best-performing emerging markets funds over the last five years have been less volatile than the IMA Global Emerging Markets sector average. These include both of the Aberdeen small cap funds, even though smaller companies are typically viewed as a volatile area of the market.
In the two significant down years for emerging markets – 2008 and 2011 – of those in the top-10, only the Melchior Asian Opportunities fund lost more than the IMA Global Emerging Markets sector average.
It is unsurprising that all of the funds in the table above also fare well on a risk-adjusted basis, which takes into account both volatility and cumulative performance. One of the most popular measures of this is the Sharpe ratio, which calculates a fund's return relative to a notional risk-free investment – in this case, cash. The difference in returns is then divided by the fund's volatility.
Top-15 highest Sharpe ratios over 5yrs
| Name | Sharpe |
|---|---|
| Aberdeen Global - Asian Smaller Companies | 0.94 |
| Newton - Asian Income | 0.71 |
| Schroder - ISF Asian Total Return | 0.71 |
| First State - Asia Pacific Sustainability | 0.69 |
| Aberdeen Global - Emerging Markets Smaller Companies | 0.67 |
| First State - Global Emerging Markets | 0.55 |
| First State - Global Emerging Markets Leaders | 0.54 |
| First State - Asia Pacific |
0.53 |
| Schroder - Asian Income | 0.53 |
| Schroder - Asian Alpha Plus | 0.53 |
| L&G - Asian Income | 0.5 |
| Baring - ASEAN Frontiers | 0.49 |
| Melchior - Asian Opportunities | 0.48 |
| First State - Asia Pacific Leaders | 0.46 |
| Fidelity - Institutional South East Asia | 0.42 |
| IMA Global Emerging Markets |
0.07 |
Source: FE Analytics
Aberdeen Global Asian Smaller Companies retains its place on the top of the list, and there was minimal movement elsewhere when comparing risk-adjusted returns to cumulative performance.
Unfortunately, with the exception of Newton Asian Income, the four open-ended funds that have more than doubled investors’ money over five years have either soft-closed or are in the process of discouraging inflows – such has been the effect of their stellar performance on demand.
However, two of the three have closed-ended versions that investors can still get access to. Aberdeen Asian Smaller Companies IT is itself the best-performing emerging markets investment trust of the last five years, with returns of 244.88 per cent.
The use of gearing has seen the trust significantly outperform the open-ended version, and the narrowing of the discount over the period has also had a positive impact.
FE Alpha Manager Robin Parbrook has recently taken charge of the Asian Total Return Investment Company, as reported by FE Trustnet in a recent article.
Among the other top-performing trusts are the Scottish Oriental Smaller Companies IT, Aberdeen New Thai IT, Aberdeen Asian Income IT and Schroder Oriental Income IT, which have all more than doubled investors’ money over the period in question.
Top-10 best performing trusts
| Name | 5yr returns (%) |
|---|---|
| Aberdeen Asian Smaller Companies Investment Trust | 244.88 |
| Scottish Oriental Smaller Companies | 205.61 |
| Aberdeen New Thai IT | 186.36 |
| Aberdeen Asian Income | 131.76 |
| Schroder Oriental Income | 123.47 |
| Aberdeen New Dawn Investment Trust | 89.89 |
| Edinburgh Dragon Trust | 84.14 |
| Schroder Asia Pacific | 76.5 |
| Invesco Asia Trust | 72.21 |
Source: FE Analytics
Once again, those that have managed to protect investors’ money on the downside have fared best in both the performance and risk-adjusted return stakes.
