Funds investing in emerging markets and the Asia-Pacific region dominated the list of ten most popular funds on Morningstar.co.uk in Q2, but this time round, in Q3, China is nowhere to be seen. Instead, the focus appears to have tightened, shining the spotlight even more closely on broader emerging markets.
At the top of the list of funds most searched for by Morningstar.co.uk users are three emerging market plays.
Aberdeen Emerging Markets, which came in second place, and First State Global Emerging Markets Leaders, third on the list, are two well-known emerging market equity funds. But the most popular fund as chosen by our readers was Templeton Global Total Return for the second consecutive quarter, and manager Michael Hasenstab has a lot of emerging market bond positions, with Uruguay and Mexico bonds in his top-10 holdings, though this isn’t a dedicated emerging market debt fund.
“The momentum against the general emerging market asset class during Q3 affected these three funds,” says Morningstar OBSR analyst Oli Kettlewell. Reeling off a multitude of reasons behind this trend, Kettlewell adds that: “The momentum here was the downwardly-revised growth rates in each of the BRIC nations [Brazil, Russia, India and China]; depreciating currencies, which can hit end-returns for investors even if share prices increase; political unrest in key emerging markets such as Brazil and Turkey; and, finally, US tapering talk which strengthened the dollar at the expense of emerging market currencies.”
It's important to note that investors use Morningstar.co.uk not only to research investments to buy but also to support a decision to sell. “Investors were no doubt alarmed by the volatility in the emerging market asset class and therefore checking these popular funds,” Kettlewell says. Both the Aberdeen and First State funds are soft-closed to new investment, with high initial charges imposed in an attempt to put newcomers off so that managers can maintain an adequate level of liquidity.
Emerging markets aside, the two new additions to the list compared with the previous quarter are both UK equity options. Cazenove UK Smaller Companies has significantly outperformed its peers and its benchmark over the past 10 years. Standard Life UK Equity Unconstrained is a ‘go anywhere’ fund that can invest across the UK equity spectrum in an attempt to find the best returns for investors seeking domestic exposure. With emerging markets out of favour, it seems investors have been looking closer to home for a less volatile ride. Both the Cazenove and Standard Life funds are likely to appear to investors seeking capital gains rather than income.
10 Most Searched for Funds in Q3
1. Templeton Global Total Return A Acc
Rated Bronze
2. First State Global Emerging Markets Leaders A Acc Rated Gold
3. Aberdeen Emerging Markets A Acc Rated Gold
4. Invesco Perpetual High Income Acc Rated Gold
5. Newton Asian Income Inc Rated Silver
6. Legg Mason Japan Equity A Acc
Not currently rated by Morningstar analysts
7. Cazenove UK Smaller Companies B Acc Rated Bronze
8. BlackRock Global Funds - World Mining A2 Rated Gold
9. Templeton Global Total Return A Mdis Rated Bronze
10. Standard Life UK Equity Unconstrained Acc
Not currently rated by Morningstar analysts
