Top 100 Funds 2019: Emerging markets

JPMorgan Emerging Markets Investment Trust (JMG)

JPMorgan Emerging Markets Investment Trust consistently beats MSCI Emerging Markets index, so its cumulative total returns are ahead of this index and many other emerging market investment trusts. Its manager since 1994, Austin Forey, is supported by more than 90 country and sector specialists.

They aim to invest in quality, attractively valued stocks listed on emerging markets. Mr Forey looks at the growth potential of specific companies rather than simply taking a view on individual countries, and tends to hold investments for the long term, so turnover of holdings is low.

China and India accounted for half the trust's assets at the end of July, and it also had meaningful allocations to South Africa and Taiwan. It had a third of its assets in financials, and about 30 per cent in consumer company shares.

“JPMorgan Emerging Markets Investment Trust is a sensible core holding for investors seeking long-term exposure to emerging markets,” says Mr Morgan. “Its manager does not deviate from his core strength in selecting high-quality mid and larger sized companies. The growth bias of the trust means it may lag some peers during strong rebounds in emerging market equities, when willingness to take greater risk is rewarded. However, this trust is run consistently by longstanding manager Austin Forey, who we regard highly.”

The trust has amended its fees so that as of 1 July it charges 1 per cent a year on assets up to a value of £500m and 0.75 per cent on assets above that value. Before this, it charged 1 per cent on assets up to a value of £800m and 0.75 per cent on those above that.

The trust had assets of £1.3bn as of 31 August, so its ongoing charge of 1.02 per cent could fall.

Hermes Global Emerging Markets (IE00B3DJ5K90)

Hermes Global Emerging Markets has a good record of outperforming MSCI Emerging Markets index, and is one of the best-performing Global Emerging Markets sector funds over three, five and 10 years. Its investment team, led by Gary Greenberg, looks to invest in quality companies on attractive valuations, on the grounds that this reduces the risk of capital loss. And they prefer ones in areas where they consider conditions to be conducive to growth.

They also incorporate environmental, social and governance factors into their analysis, so this fund could be of interest to ethical investors.

The fund was heavily focused on Asia at the end of July, with over a third of its assets in China, 14 per cent in Taiwan, 12 per cent in India and 10 per cent in Korea.

“This is a sensibly managed core global emerging markets fund,” says Mr Morgan. “Gary Greenberg is an experienced manager supported by a relatively small but focused team. Returns are a result of Mr Greenberg’s skill and judgement in making asset allocation and stock selection decisions.”

Some analysts are concerned about Hermes Global Emerging Markets' size because the fund now has assets of about £3.8bn. However, it focuses on larger companies and Hermes regularly reviews all its funds’ capacity. So far, the fund’s size doesn’t seem to be detracting from its performance, although we will monitor this over the year ahead.

BNY Mellon Global Emerging Markets (GB00BVRZK937)

BNY Mellon Global Emerging Markets has a good record of beating MSCI Emerging Markets index and the IA Global Emerging Markets sector average. So although its short-term returns can be volatile, it has a strong long-term performance record, in line with its aim of outperforming the MSCI Emerging Markets index by more than 3 per cent a year over rolling five-year periods.

The fund’s investment team, led by Rob Marshall-Lee, put together the fund’s collection of holdings with little or no reference to MSCI Emerging Markets index. They invest along the lines of a number of themes, but ultimately select holdings according to their individual merits, focusing on attributes such as balance sheet strength and return on capital metrics. When selecting holdings, they also take into consideration environmental, social and governance factors, and seek to invest in companies that are well governed and run for the benefit of all shareholders.

At the end of June, nearly half of its assets were in consumer company shares and 18 per cent in technology.

Fidelity Emerging Markets (GB00B9SMK778)

Fidelity Emerging Markets has a good record of outperforming MSCI Emerging Markets index and the IA Global Emerging Markets sector average, and is in the top quartile of its sector in terms of performance over one, three and five years. Its manager, Nick Price, aims to buy quality companies at a reasonable price. He prioritises quality because he thinks this will be beneficial to long-term returns, as emerging markets mature and investors’ focus shifts from the pace of growth to its sustainability.

He favours companies with strong market positions and competitive advantages, as these are typically able to deliver attractive earnings throughout the economic cycle. He also likes companies that deliver superior returns on their assets and have well-capitalised balance sheets.

Mr Price and his team set a target price for every stock they are considering investing in and use this metric to help narrow down the possible choices.

The fund had around three-quarters of its assets in larger companies at the end of July, with about a quarter in China, 13 per cent in India, 10 per cent in Russia and 9 per cent in South Africa.

BlackRock Frontiers Investment Trust (BRFI)

BlackRock Frontiers Investment Trust has a good long-term record of outperforming MSCI Frontier Markets index, albeit with bouts of volatility along the way. And it is one of the few options available to private investors for getting exposure to frontier markets, which are even less developed than emerging markets. Frontier markets typically have lower market capitalisations and less liquid stock exchanges, making them higher-risk, so are only suitable if you have a very high risk appetite and long-term investment horizon. But they have the potential for even stronger growth than emerging markets.

Last year the trust expanded its investment mandate to enable it to invest in countries that are neither part of MSCI World Index of developed markets nor one of the eight largest countries by market capitalisation in MSCI Emerging Markets Index.

“We rate the management team of BlackRock Frontiers highly,” say analysts at Numis Securities. “The trust has a good track record between launch in December 2010 and 31 March 2019, with NAV total returns up 81 per cent or 7.4 per cent a year, versus 49.8 per cent or 5 per cent a year for MSCI Frontiers Index, in sterling. The trust now [invests in] a broader universe following a change in mandate in April 2018, but this makes performance more difficult to compare to market indices.”

The trust is run by Sam Vecht, head of BlackRock’s emerging Europe and frontiers active equity team, and Emily Fletcher.

Although not an income mandate at the end of August it had an attractive yield of 4.4 per cent, and it paid a dividend of $0.084 (6.9p) a share in respect of its last financial year, an increase of 21.7 per cent over total dividends paid in its previous financial year, in US dollar terms.

Aberdeen Standard Investments Latin American Equity (GB00B4R0SD95)

Aberdeen Standard Investments Latin American Equity has a strong record of outperforming MSCI Emerging Markets Latin America index. The fund’s investment team, led by Devan Kaloo, looks to build large positions in high-quality companies that are trading at reasonable valuations. As a result, it is reasonably concentrated with 45 holdings.

“Aberdeen Standard’s renowned emerging markets team’s primary investment concern is whether companies demonstrate outstanding quality characteristics, such as strong managements and balance sheets,” say analysts at FundCalibre. “[They take] a value approach – targeting stocks that appear to trade for less than they should do. The strategy has had considerable success across the region.

About 65 per cent of the fund’s assets are in Brazil and 22 per cent in Mexico.

Although this fund has made strong returns, it can experience bouts of short-term volatility. So, as with other single-country or regional emerging markets funds, this is only an option if you have a very high risk appetite and long-term investment horizon.

FUNDS DROPPED

Schroder Small Cap Discovery (GB00B5ZS9V71)

Schroder Small Cap Discovery has a mixed record when it comes to outperforming its hybrid benchmark, a blend of MSCI smaller companies indices focused on emerging markets, Hong Kong and Singapore. And it has not performed as well as MSCI Emerging Markets index over the past three calendar years and so far this year. Although it does not invest in the companies in this index and this is not an appropriate comparison, as an investor you could instead buy a cheaper passive fund that tracks this index, or an active fund that outperforms this index.

Schroder Small Cap Discovery is run by highly experienced and successful Asia investors Matthew Dobbs and Richard Sennitt. But you can access their skills via a number of Asian equity funds that have delivered strong returns, including two on this list – Schroder AsiaPacific Fund and Schroder Oriental Income Fund.