This article is part of the Morningstar's Guide to Emerging Market Investing. Click here to find out just what an emerging market is and which regions hold the potential to boost your investment portfolio.
Aberdeen Emerging Markets Equity
Long-term focused investors will find Aberdeen Emerging Markets an excellent fit. A large, well-resourced investment team is led by Devan Kaloo. An individual we hold in high regard, Kaloo has been at the firm since 2000 and, like a number of his colleagues, has spent the majority of his investment career at the firm.
Kaloo also acts as global head of equities, a role he took on in July 2015 when the strategy’s long-time steward Hugh Young moved to a broader role within the firm. This should serve as part of the natural succession planning within the firm, and it is a logical decision in our eyes. Able support comes from Joanne Irvine, head of emerging markets ex Asia. The broader team is flat structured with staffers seen as generalists rather than having sector responsibilities, helping to minimise key-person risk.
The strategy faces additional challenges. Capacity has been a factor for a number of years; this has been lessened to an extent by net outflows of £825 million in the year to 30 June 2016. This is significantly below peak outflows seen during the past few years, caused by a combination of negative sentiment towards the asset class together with performance stumbles.
That said, long-term performance here remains impressive, highlighting the long-term approach adopted by Kaloo, Irvine, and the team. Investing in emerging markets is not without its risk, but Aberdeen has shown an ability that makes it one our top choices. We restate the fund's Morningstar Analyst Rating of Silver.
Lazard Emerging Markets
Lazard Emerging Markets posted impressive results in 2016 after a deeply disappointing loss the prior year by adhering to its time-tested discipline. That dedication confirms its Morningstar Analyst Rating of Silver. The fund is run by lead manager James Donald.
Besides its adherence to a contrarian yet prudent relative value approach, the fund's management stability is a positive. Donald has been lead manager here since 2007, and the members of his seven-person team have all been on board as analysts or managers for at least six years, and some – such as comanager Rohit Chopra – for much longer than that. Departures from this group are uncommon. The two managers who have left in recent years simply shifted their focus to other Lazard funds and are still in contact with this team.
Although this fund's 2015 loss shows it won't necessarily be easy to own, it seems likely to outperform over the long term as it has done up until now.
JP Morgan Emerging Markets Trust
We think JPMorgan Emerging Markets is a high-quality offering. The fund has been run by experienced portfolio manager Austin Forey since 1994. Forey brings well over two decades of industry expertise, the bulk of which have been in emerging markets.
His process is tried and tested, taking a long-term approach and focusing on businesses that exhibit the following characteristics: attractive earnings, strong balance sheets, excess returns on capital, sustainable competitive advantages, an ability to grow market share, and potential to generate significant shareholder value. There tends to be a bias to domestic consumption growth, rather than commodity prices, and therefore the portfolio will often be dominated by financials and consumer staples. At the same time, cyclical sectors such as energy, industrials, and materials are generally underweight.
The fund's ongoing charges are reasonable, and we welcomed the announcement that the performance fee was to be abolished from July 2015. This, along with the experience of the manager, the structured process, the well-resourced team, and the success achieved all contribute to our increased conviction in this fund. The fund earns a Morningstar Analyst Rating of Silver.
