Moneyspider.com latest data reveals three quarters of all emerging market funds under-performed in last three years – but First State and Aberdeen power ahead
A two horse race as the front runners easily leave the nags behind
- First State turns £5,000 into £8,700 in three years
- Aberdeen not far behind as A rated funds continue to reward investors – but watch where you put your money, warns Moneyspider.com – or you could lose your shirt
- Territory based research teams the key to top returns in high risk sector
Investors who have held their nerve and stayed in emerging markets funds despite the ups and downs of global stock markets have been well rewarded, according to new data from online investment research analysts Moneyspider.com.
But only if they have selected the right funds. Because while there are a handful of stellar performers within this higher risk sector, the majority of funds – more than three quarters – are relegated to Moneyspider.com's C/E ratings (please see editor's notes for full explanation on how Moneyspider.com's ratings system works).
Investors who have been fortunate to opt for top-flight fund managers such as First State Investments have seen their choices pay off handsomely.
First State's Global Emerging Markets Fund for example returned £8,715 on a £5,000 investment over three years in the period May 2009 to May 2012. And Aberdeen's popular Emerging Markets Fund was not far behind with £8,027 over the same period.
Both funds are A rated, but while the top performers in the sector are dominated by the likes of First State and Aberdeen, there are far more lame duck funds in this sector than alpha performers.
Of the 41 funds which Moneyspider.com monitors within the sector, the vast majority, 73.2%, are in the average to below average C- E range of the moneyspider.com rankings system – most investors in these funds may not have lost money, but they will have lost out on the rewards fielded by the top performers.
Just 26.8 per cent carried the Moneyspider.com A/B ratings – so investors need to choose their fund wisely, paying particular attention to relatively short term performance, said Tony Ahearne, Moneyspider.com director.
"Emerging markets funds are currently providing some of the most attractive returns of all the equity investment fund sectors, but performance between the best and the worst of the managers in this sector fluctuates wildly.
"As market conditions vary so intently in many of the developing countries, investors need to be aware of the fund manager's ability to spot the potential for short term profits and then pulling out and moving on," he said.
Emerging markets now account for about a third of global GDP – but only around 10% of world stock-market holdings.
"Most investors are relatively under-exposed to emerging market funds," said Ahearne, but as they are generally considered to be at the higher end of the risk spectrum there is understandable caution.
"Most financial advisers will typically recommend around 5 per cent of the average investor's portfolio is held in emerging market funds.
"But in some circumstance the less risk averse investor may want to increase their exposure – especially given some of the returns we are seeing in the sector.
When planning which fund to go into, Ahearne recommends looking at how the fund manager has structured its investment managers.
"Aberdeen for example has always fielded one of the strongest emerging markets teams, and it is the sign of a good fund manager when they have a number of teams split into regional specialists – in this case based in Singapore, Hong Kong, Bangkok and Kuala Lumpur.
"Our research suggests that it is currently a two horse race between Aberdeen and First State, but investors should be sure that the fund which they ultimately choose has good exposure to India.
"It is a massive market with around 9,000 quoted companies, making it very appealing for stock pickers. India has a rapidly expanding middle class, a thriving export economy and with English widely spoken is likely to become more attractive than China," added Ahearne.
While some funds are clearly attractive, Ahearne warned that investors had a "high chance" of getting it wrong unless they carefully researched respective fund manager performance.
"Some fund managers actually run funds within the same sector which deliver a superior performance. We cannot stress how important it is to look not just at how the fund is performing against rival managers within the sector, but also with other funds fielded by the investment manager within the same stable.
"It could be the difference between making thousands of pounds – or losing thousands of pounds."
Ends
Moneyspider.com analysed data on 41 Global Emerging Markets funds on 26 June 2012 in conjunction with Financial Express
The value of investments and income from them may go down. You may not get back the original amount investment.
Emerging Markets: Some funds will carry greater risks in return for higher potential rewards. Investment in emerging market funds can involve greater risk than is customarily associated with funds that invest in developed, more established markets. Above average price movements can be expected and the value of these funds may change suddenly.
Further details on the mechanics of Moneyspider.com can be found at www.moneyspider.com.
