3 Top Performing Emerging Market Funds
The top performing funds over the past three years include both growth- and value-biased approaches, reflecting recent market conditions.
Hermes Global Emerging Markets focuses on identifying high quality companies that exhibit attractive growth, momentum and valuations. The latter highlights the strategy of buying companies when they trade at a discount to fair value, thus providing a margin of safety. However, the overall portfolio will tend to show growth and quality characteristics in terms of relatively high P/E and return on invested capital, while debt levels are generally slightly lower.
ESG assessment is part of the process and the fund scores an Above Average Morningstar Sustainability Rating. The manager, Gary Greenberg, is an experienced investor and has been at Hermes since 2010. He prefers to run a portfolio of 50-75 holdings and has the flexibility to allocate across regions to reflect the best opportunities. As at 31 March 2017 there were clear biases of around 10 percentage points to IT and consumer discretionary relative the benchmark, while country-level deviations were slightly more muted at 4.4 percentage points overweight to India and a 5.4 percentage points underweight to South Korea.
A quantitative process is behind the Goldman Sachs Emerging Markets CORE Equity fund. The CORE investment process is used on a suite of products covering a range of geographies. This process has been developed and refined over time and is backed by considerable resources covering research, implementation and trading. The process looks to combine fundamental factors with behavioural aspects and aims to be differentiated through identifying relatively unique factors and factor combinations.
The assessment of risk and transaction costs is integral to the process. As at 31 March 2017 the portfolio showed a bias to value factors relative to the index and in contrast to peers was underweight the consumer sectors. At the country level there was also differentiation with overweights to South Korea and Taiwan as well as China.
UBS Global Emerging Markets Opportunity is managed by head of EM and Asia Pacific Equities Geoffrey Wong. The manager draws on an analyst team of around 13 individuals and follows the group’s price to intrinsic value approach. The fund is driven by bottom-up research and is unconstrained.
Stock level research involves a structured assessment of quality, together with the cash-flow-based intrinsic value calculation, with the managers then assessing these factors together with macro inputs to build the portfolio. Around 30 stocks are held and although deviations from the index are not excessive, there is some differentiation in this fund, with an underweight to the popular Indian market and an overweight to Thailand that stands at over 5 percentage points.
3 Largest Emerging Market Funds
Some of these large funds have seen lead manager changes recently, but the established investment processes remain intact.
Despite the retirement of long-standing manager Vincent Strauss in 2016, the Comgest Growth Emerging Markets fund remains highly regarded, holding a Morningstar Analyst Rating of Gold. The investment approach remains in place, and the current management team includes Wojciech Stanislawski, who has been part of the team since 1999, providing further continuity. The investment approach is very clearly focused on sustainable growth stocks and the portfolio is built bottom-up from this stock level research.
Most cyclical stocks are excluded from the investment universe and the names that make it into the fund tend to be held for the long term. The portfolio is concentrated in around 40 names, but it remains reasonably diversified with the largest sector deviations, as at 31 March 2017, being the 7.2 percentage points underweight to materials and 6.9 percentage points overweight to consumer staples. At the country level there were clear biases to Brazil, India and China.
JPM Emerging Markets Equity has also had a lead manager change, with Leon Eidelman officially taking control from Austin Forey in July 2016. Eidelman has considerable experience at the group, having joined in 2002, and continues to use the established bottom-up process that has a quality growth bias at the stock level but may look to take advantage of short term macro-weakness to provide attractive entry points.
The manager draws heavily on the considerable resources at the group, particularly the GEM and China analyst teams that total 28 individuals. All of these analysts share a structured investment process that provides assessment of company quality and stock upside. The portfolio is reasonably diversified with 70-80 names and the largest sector level deviation at 31 March 2017 was the overweight to financials at overweight 6.3 percentage points. Country level deviations can, however, be more significant, with a 12.7 percentage point overweight to India. The fund holds a Morningstar Analyst Rating of Bronze.
Fidelity Emerging Markets, which also holds a Morningstar Analyst Rating of Bronze, is built from the bottom-up and has a clear growth bias. The manager since 2009 has been Nick Price, who sits at the top of a considerable sized resource that feeds into this product. A team of over 40 analysts located across the globe feed research into regional portfolio managers, who then provide Price with three regional portfolios that are the primary universe for this fund.
Price will take this input, but also conducts a lot of his own due diligence on individual companies, working alongside the relevant analyst. The portfolio shows expected growth characteristics as well as quality aspects in terms of lower debt and higher margins than the index. At the sector level the fund shows limited exposure to utilities, energy, telecoms and real estate, while there is an overweight versus the index of almost 17 percentage points to consumer discretionary, an area that has been a persistent favourite.
