Schroder Global Emerging Markets and JPM Emerging Markets Opportunities are the most consistent IA Global Emerging Markets funds of the past decade, beating the MSCI Emerging Markets index – the most common benchmark in the sector – in eight of the past 10 calendar years.
Of the 64 funds with a track record long enough to be included in the study, another nine beat it in seven of the past 10 calendar years.
Most consistent IA Global Emerging Markets funds
Source: FE Analytics
Robert Davy and Tom Wilson, the managers of the Schroder Global Emerging Markets fund, believe that emerging stock markets are inefficient and provide strong potential for adding value through active fund management.
The managers use a mix of top-down analysis and bottom-up stock selection, looking to derive 50 per cent of added value from each.
They said it is inappropriate to apply a systematic style bias across so many countries at such different stages of development.
“However, given our strong analytical resources, we would expect to generally have a bias towards medium capitalisation stocks which should provide extra return potential,” the managers explained, adding: “We believe that as fund managers we should manage both return and risk.
“Our aim is to achieve returns with the minimum level of risk through a pro-active approach to risk control. We believe that applying a systematic, disciplined approach, with a strong team culture, increases our ability to add value.”
The managers recently increased their overweight position in Brazil, pointing out valuations are reasonable and the currency is cheap.
“Although the fiscal deficit is large, the balance of payments is improving,” they said.
They also increased their Turkey overweight due to cheap valuations and the recent reintroduction of “policy orthodoxy”. These switches were made at the expense of their China exposure, where they were already underweight.
“China has outperformed strongly year to date as the economy normalised post-lockdowns,” they said.
“We see better opportunities elsewhere and geopolitical tensions have continued to rise.”
Schroder Global Emerging Markets made 92.79 per cent over the 10-year period in question, compared with 63.57 per cent from the MSCI Emerging Markets index and 54.32 per cent from the IA Global Emerging Markets sector.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The £937m fund has ongoing charges figure (OCF) of 0.95 per cent.
Next is JPM Emerging Markets Opportunities, which aims to outperform the benchmark by 2.5 per cent per annum over rolling three year periods. Its managers – Richard Titherington, Anuj Arora and Sonal Tanna – use a fundamental, bottom-up stock selection process combined with top-down views on countries. They take a high-conviction approach to finding the best investment ideas.
“We have long favoured high-quality consumer businesses that are able to grow as incomes rise as well as by taking market share from weaker competitors,” said the managers in a recent note to investors.
The fund outperformed in 2020 with both country allocation decisions and stock selection contributing. Although stock selection detracted in the first half of the year, this reversed in the second half as financial positions recovered strongly.
JPM Emerging Markets Opportunities made 97.81 per cent over the 10-year period in question.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It is $5.6bn in size and has an OCF of 1.06 per cent. However, it has now soft closed.
BlackRock Emerging Markets and GS Emerging Markets CORE Equity Portfolio also deserve a mention, having beaten the sector in nine of the past 10 years, even though they only beat the index in seven.
Gordon Fraser and Kevin Jia, managers of the BlackRock Emerging Markets fund, believe that emerging markets are inefficient, complex and cyclical, and that a disciplined approach to country allocation combined with in-depth company research can deliver superior returns.
Their team’s proprietary macro process focuses on identifying turning points in macroeconomic cycles.
BlackRock Emerging Markets is on the FE Invest Approved Funds List, with the analysts that put it together noting: “This strategy is Fraser’s first time managing money in a long-only format, but since he took over this strategy, he has demonstrated outperformance in both rising and falling markets.
“The team has superior access to not only company management, but also high-level diplomatic and central bank contacts, which is key when assessing the macroeconomic prospects of a country.”
BlackRock Emerging Markets made 97.55 per cent over the 10-year period in question.
The £760m fund has an OCF of 0.91 per cent.
The GS Emerging Markets CORE Equity Portfolio uses Goldman Sachs’ CORE strategy: a multi-factor proprietary model which aims to forecast returns on securities.
The CORE strategy considers the momentum, value and profitability characteristics behind a stock’s performance. Momentum involves identifying trends within global economic cycles, industries, companies and analyst reports, while the value focus seeks to identify stocks trading at attractive prices relative to peers. Finally, the CORE strategy’s profitability aims to pinpoint companies with compelling profitability characteristics by evaluating balance sheet health.
GS Emerging Markets CORE Equity Portfolio made 88.45 per cent over the 10-year period in question.
Performance of funds vs sector and index over 10yrs
Source: FE Analytics
The $3bn fund has ongoing charges of 0.85 per cent.