Global Emerging Markets was the best-selling Investment Management Association (IMA) fund sector in October 2012 for the first time on record with net retail sales of £228m, well above its monthly average of £86m over the previous 12 months. Sales for the sector were at their highest level since November 2010.
If you're one of the thousands of investors choosing to diversify your portfolio with emerging markets - be careful - as not all the funds are worth your money.
The Neptune Emerging Markets fund (ISIN: GB00B2R07G10) is one of the worst value funds in the sector. For a very high total expense ratio (TER) of 2.5 per cent you'd expect the performance to blow your socks off, but it is in fact one of the worst-performing emerging markets funds.
In the third quarter of this year the fund slumped a full 1 per cent under the MSCI Emerging Markets Index (4.8 per cent) with a return of just 3.8 per cent.
Fund manager Ewan Thompson said fund performance was hurt by the late sell-off in Russia, as well as a poor showing from South Africa where ongoing unrest in the mining sector has affected non-materials sectors (in which the fund has investments). In addition, China continued to lag wider equity markets - in particular its large holding in Baidu.com cost performance as the stock underperformed on competition concerns.
Sentiment is improving and stabilisation and recovery in China - expected in the coming months - will be a major catalyst for emerging market outperformance. The fund remains underweight in defensive sectors such as healthcare, telecommunications and utilities, and has overweight exposures to energy, industrials and consumer discretionary stocks.
The fund is most heavily invested in Russia (23.9 per cent), China (21.5 per cent), Brazil (11.5 per cent) and is allocated 23.1 per cent in financials, 22 per cent in industrials and 17.1 per cent in consumer discretionary.
