Concerns over an economic slowdown in China, falling commodity prices and an economic revival in the developed world have meant emerging markets and Asia Pacific equities have struggled over recent years.
It has been a difficult time to invest in the sectors, so it is not too surprising to see that only a select few funds have been able to consistently outperform their peers in each of the last five calendar years.
However, what is surprising is that portfolios run by investor favourites First State and Aberdeen (the only exception being Aberdeen Global Emerging Markets Smaller Companies) have failed to beat their sector in each of the last five calendar years, despite the fact they have attracted the lion's share of inflows.
The only fund that has beaten the IMA Asia Pacific ex Japan sector in each year between 2009 and 2013 is Greg Kuhnert’s relatively small £110m Investec Asia ex Japan fund.
Source: FE Analytics
As the table shows, Investec Asia ex Japan did not shoot the lights out in any of those years, because it was only a top-quartile performer in 2013 and 2010. However, it did beat its MSCI AC Asia ex Japan index in each 12-month period, except in 2012 when it fell short by around 50 basis points.
Nevertheless, over a rolling five-year period it has been the sector’s ninth-best performing fund with returns of 116.14 per cent and has outperformed the index by more than 20 percentage points.
Investec Asia ex Japan is also a top-quartile performer for alpha generation relative to its benchmark, information ratio, Sharpe ratio, downside risk and annualised volatility over the last five years.
Henderson Institutional Asia Pacific ex Japan Enhanced Equity has also beaten the sector in each of the last five calendar years, although as its name suggests, it does not accept retail money.
The five crown-rated Aberdeen Global Emerging Markets Smaller Companies fund was the only retail portfolio in the IMA Global Emerging Markets sector that beat the sector average in each of the last five calendar years (Lazard Emerging Markets Institutional also achieved this feat).
The $2.6bn fund was a top-quartile performer in every one of those years, except for 2013.
Notable years include 2012 and 2010, when the fund delivered the highest returns in the sector. Combined, those returns mean that Aberdeen Global Emerging Markets Smaller Companies has easily been the best-performing fund in the sector over five years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Unfortunately for new investors, Aberdeen Global Emerging Markets Smaller Companies was soft-closed last year.
Aberdeen Asia Pacific and Emerging Markets Equity failed to make the list of most consistent funds as the group, in general, had a difficult 2013.
For example, Aberdeen Emerging Markets Equity, Asia Pacific and Asian Smaller Companies were all bottom-quartile performers in their respective sectors last year.
Hugh Young, Aberdeen’s head of global equities, told FE Trustnet earlier this week that the outperformance of weaker, cyclical businesses hurt the firm’s funds, which focus on quality names with more dependable earnings.
The group was also hit by currency weakness in some of its preferred markets, he explained.
However, it is not all bad news for Aberdeen. All of its Asia Pacific and Emerging Markets funds beat their respective sectors in every year between 2012 and 2008, with all of them boasting top-quartile returns in 2008.
While 2013 was Aberdeen’s bogey year, 2009 was the reason why no First State funds made the list.
First State Asia Pacific, First State Asia Pacific Leaders, First State Asia Pacific Sustainability and First State Global Emerging Markets failed to rebound as strongly after the financial crash and as a result were all bottom quartile in 2009.
First State Global Emerging Markets Leaders bucked the trend slightly, though it was still third quartile that year.
However, all of those funds performed well in the last four discrete calendar years and like the Aberdeen funds, were all top-quartile performers in the crisis year of 2008.
On top of that, the five crown-rated First State Global Emerging Markets Sustainability fund, which is headed up by the FE Alpha Manager duo of David Gait and Millar Mathieson, was a top-quartile performer in 2013, 2012, 2011 and 2010.
It was, however, only launched in April 2009 so it doesn’t fit the criteria. Nevertheless, it is the third best-performing portfolio in the sector since its launch, with returns of 112.32 per cent, and has more than doubled the returns of the MSCI Emerging Markets index in the process.
Performance of fund vs sector and index since Apr 2009
Source: FE Analytics
It is also one of the only remaining First State funds that is available to new investment, currently standing at only £330m.
A number of funds that are not managed by First State or Aberdeen only just missed the cut.
For example, in the IMA Asia Pacific ex Japan sector, Baillie Gifford Pacific would have made the list if it had not registered third-quartile returns in 2010.
Jason Pidcock’s five crown-rated Newton Asian Income fund, which is hugely popular with investors and has an AUM of £4.1bn, was a top-quartile performer in 2012, 2011, 2010 and even 2008; however, it fell into the third quartile in 2009 and 2013.
Schroder Asian Alpha Plus, which is managed by Matthew Dobbs, is the sector’s second-best performer over five years. It has been a top-quartile performer in four of the last five discrete calendar years, but narrowly underperformed the sector last year, with losses of 2.13 per cent.
Both JPM Emerging Markets Small Cap and Templeton Emerging Markets Smaller Companies have been top-quartile performers in four of the last five years. However, both struggled in 2011 when the economic slowdown in China began to bite and as a result fell into the bottom quartile that year.
Performance of funds vs sector in 2011
Source: FE Analytics
McInroy & Wood Emerging Markets, which is headed up by FE Alpha Manager Tim Wood, was a top-quartile performer in each year between 2012 and 2009.
However, like the majority of Aberdeen’s funds, it struggled in 2013: it was a third quartile performer, with losses of 5.38 per cent.
