Smaller companies and emerging markets are less covered by analysts compared with their large cap and developed market rivals. Travel costs make the latter area even more expensive, which is why ongoing charges figures (OCFs) tend to be well above average in the IMA Global Emerging Markets and IMA Asia Pacific ex Japan sectors.
That said, there are a handful of portfolios that have managed to keep charges down, and simultaneously deliver strong and consistent returns.
Somerset Emerging Markets Dividend Growth – OCF 1.3%
The average actively managed funds in the IMA Global Emerging Markets and IMA Asia Pacific ex Japan sectors have OCFs of 1.79 and 1.75 per cent, respectively. With an OCF of 1.3 per cent therefore, the Somerset Emerging Markets Dividend Growth fund is something of a bargain.
As its name suggests, Ed Lam’s £401m portfolio focuses on income as well as growth. It is currently yielding 3.3 per cent – one of the highest figures in the sector – and since its launch in March 2010 has beaten its sector and benchmark, with less volatility.
Performance of fund, sector and index since launch
Source: FE Analytics
FE data shows that the fund has delivered 18.68 per cent since inception, compared with a slight loss from the IMA Global Emerging Markets sector average and MSCI EM index.
Lam (pictured) has also operated with lower volatility, losing significantly less in the 2011 sell-off.
Companies that pay a sustainable and growing dividend, which Lam targets, tend to weather market volatility better than average, which goes some way in explaining why the manager’s record has been so strong.
He recently told FE Trustnet that he is wary of valuations in consumer-facing industries and is looking at sectors less obviously associated with emerging markets, such as textiles and technology.
Lam is currently significantly overweight South Africa, where he says he is finding a number of high-quality companies, as well as Taiwan and South Korea. He is generally quite cautious at the moment, reflected by his significant underweight in China and hefty cash weighting.
The five crown-rated Somerset fund requires a minimum investment of £2,000 and is available across most major platforms.
Founding partner of Somerset Dominic Johnson has strong views on high charges and asset gathering in the fund management industry, as highlighted in a recent FE Trustnet interview.
CF Ruffer Pacific – OCF 1.6%
The CF Ruffer Pacific fund is another proven low-cost option, and like Somerset, also has a good record of protecting against downside risks.
The fund sits in the IMA Specialist sector, as manager Mary McBain does not want to be constrained by the guidelines set out in the IMA Asia Pacific ex Japan or IMA Asia Pacific including Japan sectors.
This allows her to hold significant assets in cash and fixed interest when she sees fit, which has helped the fund outperform in falling markets.
She can also hold Japanese equities.
McBain has consistently beaten her MSCI Asia Pacific index benchmark since she took over in 2006, and has done so with a significantly lower annualised volatility. Her returns of 78.31 per cent put her more than 30 percentage points ahead of the index.
She has lagged behind the Asia Pacific ex Japan sector over the period, but her ability to protect capital has seen her outperform over one and three years.
Performance of fund, sector and index since launch
Source: FE Analytics
The analysts on the FE Research team are big fans of McBain, and rate the CF Ruffer Pacific fund as a “hold” at present.
“McBain takes an opportunist approach to investing and wants the fund’s clients to profit from her highest-conviction Asia Pacific areas,” they explained.
“Although she does not benefit from vast resources at Ruffer, she more than makes up for this with her extensive experience, wide network and in-depth knowledge of the region’s companies.”
Like most of her colleagues at Ruffer, McBain is relatively cautious at the moment, with cash at a 13 per cent weighting. Japan – a developed market which tends to be less volatile than most countries in Asia – has a 14 per cent weighting.
Hong Kong is her biggest regional position at 24 per cent, followed by China at 15 per cent. Sri Lanka is a significant overweight, at 11 per cent.
The £168m Ruffer fund has ongoing charges of 1.6 per cent, making it well below average in terms of cost. It is available for a minimum investment of £1,000 and is available across most major platforms.
First State Asia Pacific Leaders – OCF 1.55%
First State has made an effort to stem inflows into its £6.4bn Asia Pacific Leaders fund, but for the time being it remains open to new money and is available across most major platforms.
The fund’s large size has allowed the firm to significantly cut its OCF, which currently stands at 1.55 per cent.
Manager Angus Tulloch needs no introduction: he is one of the highest profile names in the industry, significantly outperforming his peers over the long-term and with less volatility.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
The fund has suffered a bout of underperformance of late however, examined in closer detail in a previous FE Trustnet study.
Tulloch and co-manager Alistair Thompson tend to target high quality, defensive companies, with good corporate governance and predictable earnings. High valuations in this area have seen the duo move into cheaper areas of the market recently, including a significant overweight in India, which currently represents 18 per cent of the portfolio.
First State Asia Pacific Leaders has been a constant in the FE Select 100 since the elite list was first put together in early 2012.
“Tulloch and Thompson have an outstanding record in Asia Pacific markets, though they rely heavily on their analysts, who constantly visit and research companies before making recommendations,” the FE Research team said.
“The two managers have adopted a cautious approach which differentiates them from their peers, who see the Asian market as the next Eldorado.”
“They remain flexible however, and are able to adapt should conditions change.”
