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Investment trusts beat unit trusts in emerging markets
It’s official, emerging market investment trusts have beaten their unit trust rivals at every turn over the past three, five and 10 years.
Investment trusts in the emerging markets sector have generated an average return of 368% over the past 10 years, compared with the average emerging markets unit trust (or open-ended investment company) return of 221%.
One reason for the better performance of investment trusts is their ability to hold on to investments in volatile markets even if shareholders sell their shares in the trust.
By contrast, if investors in unit trusts are unnerved and decide to cash in or move their holdings, the fund may have to sell some of its holdings at a low price in order to provide the money to investors who are exiting.
Tom Tuite Dalton, investment trust analyst at Oriel Securities, says: ‘A closed-ended fund means it’s less likely to be a forced seller; you can own some of the less liquid investments should you wish to, use leverage [borrowing to try to enhance returns] and I think the fees are generally lower. The disadvantage of investment trusts in global emerging markets is that there aren’t that many to choose from.’
Below are the details of the top performers among trusts and funds, based on 10-year figures. We decided to go with the share price return, as this is what shareholders receive, rather than the net asset value (NAV) which measures the performance of the trusts' investments.
|Investment trust||Share price total return (%) 10 years||Share price total return (%) 5 years||Share price total return (%) 3 years|
|Templeton Emerging Markets||403||80.75||70.67|
|Genesis Emerging Markets||387||69.35||79.58|
|JPMorgan Emerging Markets||329||41.40||54.34|
|Advance Developing Markets||208||20.29||44.43|
|Advance Frontier Markets||n/a||n/a||46.87|
Data source: Winterflood as at 30/04/2012. All figures are total return gross income reinvested.
Eminent investment manager Mark Mobius oversees the top performing Franklin Templeton Emerging Market trust. The portfolio has given an impressive total return of 403% over the past 10 years and has top holdings in Chinese car manufacturer Brilliance China and Brazilian iron-ore producer Vale.
Tuite Dalton says: ‘Templeton has had the best long-term record and it is the largest trust, with more of Russia and Eastern Europe.’
The trust is closely followed by Genesis Emerging Markets , with top holdings in financials and a number of other Genesis funds.
‘Genesis is less retail owned, it’s more institutionally held as it has had a lower profile historically and it used to have a dollar quote which puts retail investors off but that changed about a year ago,’ Tuite Dalton adds.
However, Jonathan Miller, head of research at Citywire, cautions that emerging market investment trust shares will suffer if the eurozone crisis causes investors around the world to avoid higher risk assets. That could create good buying opportunities in the future though.
|Fund||Total return (%) 10 years||Total return (%) 5 years||Total return (%) 3 years|
|Aberdeen Emerging Markets||392||91||85|
|Baillie Gifford Emerging Markets Growth||313||66||67|
|First State Global Emerging Markets||307||87||70|
|Lazard Emerging Markets||279||50||56|
|AXA Framlington Emerging Markets||268||36||52|
Data source: Citywire as at 30/04/2012. All figures are total return gross income reinvested.
The spike of interest in emerging market funds has taken its toll on the open-ended fund market: four out of five of the top performers over the past 10 years have been soft closed to new investors. Many of the funds have been soft closed over the past few years as money poured in, prompting liquidity fears if there were large redemptions as a result of market volatility.
The top performing fund over 10 years is the Aberdeen Emerging Markets fund, run by Citywire AA-rated manager Devan Kaloo. The fund has top holdings in Samsung Electronics and Vale. The fund was recently soft closed to reduce the flow of cash into the fund.
In second place is Baillie Gifford’s Emerging Market Growth fund, run by Citywire A-rated Richard Sneller, while Citywire Selection’s First State Global Emerging Markets fund, run by Jonathan Asante, comes in third place, with a total return of 307%. Both the Baillie Gifford fund and the First State trust have also been soft closed.
Larzard’s Emerging Market fund gave a total return of 279% over the past 10 years and like many of its counterparts is no longer open to new clients.
The only top performer over 10 years that is still open to investors is the AXA Framlington Emerging Markets fund, run by Julian Thompson. The fund gave a total return of 268% over the past 10 years and has top holdings in Brazilian oil company Petroleo Brasileiro and Samsung Electronics.
More about this:
Look up the funds
- Aberdeen Emerging Markets A Acc
- Baillie Gifford Emerging Markets Growth A Acc
- First State Global Emerging Markets A GBP Acc
- Lazard Emerging Markets Ret Inc
- AXA Framlington Emerging Markets R Acc
Look up the investment trusts
- Templeton Emerging Markets UK (Ordinary Share)
- Genesis Emerging Markets (Participating Pref Share)
- JPMorgan Emerging Markets (Ordinary Share)
- Advance Developing Markets (Ordinary Share)
- Advance Frontier Markets (Ordinary Share)
Look up the fund managers
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by James Carthew on Dec 06, 2013 at 08:43