IA Global Emerging Markets funds such as Hermes Global Emerging Markets, GS Emerging Markets Equity Portfolio and Fidelity Emerging Markets have some of the sector’s strongest track records across a range of risk and return measures, according to FE Trustnet research.
Emerging markets have endured a tough time over the past few years, although they have bounced back strongly more recently. The average fund in the IA Global Emerging Markets sector is lagging its IA Global rival by more than 25 percentage points on a five-year view, but has made 12.47 per cent over the past 12 months, compared with a 5.49 per cent rise from developed market funds.
Many commentators expect emerging markets to strengthen so with this in mind FE Trustnet has reviewed the IA Global Emerging Markets sector on 10 different measures, although past performance is no guide to future returns.
To find out which funds have consistently been at the top of their peer group, this article will look at the average decile rankings of the sector when it comes to five-year returns up to the end of 2017, the annual returns of 2017, 2016 and 2015, annualised volatility, alpha generation, Sharpe ratio, maximum drawdown and upside and downside capture relative to the sector average.
Performance of fund vs sector and index over 5yrs to end of 2017
Source: FE Analytics
The chart above shows the total return of FE Alpha Manager Gary Greenberg’s $4.1bn Hermes Global Emerging Markets fund, which comes in top place in this research after scoring an average decile ranking of 1.8.
Its score is down to top-decile numbers when it comes to five-year total returns (which were the highest in the peer group), performance in 2017 and 2015, alpha generation, annualised volatility, Sharpe ratio, and upside and downside capture.
Greenberg, who took over the five FE Crown-rated fund in September 2011, aims to identify the winners from structural changes in emerging economies, seeking out high-quality, efficient and sustainable companies. Top holdings include overweights to Tencent, Samsung Electronics and Alibaba.
The FE Invest team, which has the fund on Approved List, said: “Greenberg successfully navigated a tough period for emerging markets after taking over, helped by a focus on growing consumer demand. Meanwhile, some previously top-performing funds fell by the wayside, failing to adapt to a change of leadership in emerging markets.”
In second place with an average decile ranking of 2.3 is GS Emerging Markets Equity Portfolio. This $3.4bn fund made a top-decile total return of 80.57 per cent over the five years in question and is also in the sector’s first decile for performance in 2017 and 2015, alpha generation, maximum drawdown and Sharpe ratio.
The five FE Crown-rated fund is based around a 100-150 strong portfolio, which is diversified across market capitalisation and style; the team behind it seek strong long-term growth by investing in “very dynamic” stocks. Tencent, Samsung Electronics and Alibaba are the three biggest holdings at present.
Source: FE Analytics
JPM Emerging Markets Small Cap, headed up by FE Alpha Manager Amit Mehta and Austin Forey, is in third place with an average decile ranking across the 10 metrics of 2.5. It’s in the top decile for five-year returns, 2015 performance, alpha, maximum drawdown, Sharpe ratio and downside capture.
The fund has its biggest geographical overweights to South African, Mexican and Brazilian stocks but US software engineering and IT consulting services firm EPAM Systems is the largest holding followed by South Africa health, beauty, and wellness retailer Clicks Group and Dutch-listed convenience store business Spar.
Other well-known IA Global Emerging Markets funds that sit near the top of the table include Fidelity Emerging Markets, Newton Global Emerging Markets and Baillie Gifford Emerging Markets Growth.
The largest member of the sector is the $11.2bn Vanguard Emerging Markets Stock Index fund. This index tracker appears in 43rd place out of 79 funds with an average decile ranking of 5.7.
Robeco QI Emerging Conservative Equities, the second largest fund with assets of $5.2bn has an average decile ranking of 6.7, putting it in 58th place, while the $5.1bn Aberdeen Global Emerging Markets Equity fund is in 71st after scoring 7.8.
Performance of fund vs sector and index over 5yrs to end of 2017
Source: FE Analytics
At the very bottom of the table, however, is the Candriam SRI Equity Emerging Markets fund. This €390.6m fund has an average decile ranking of 8.8.
Other IA Global Emerging Markets funds at the very bottom of the table for this research include Aberdeen Global Emerging Markets Smaller Companies (8.5 average decile ranking), Legg Mason QS Emerging Markets Equity (8.3), Newton Emerging Income (8.2) and Templeton Global Emerging Markets (8.1).