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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.
Markets
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 |
| Sector average | 368 | 55.00 | 61.00 |
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.
Other top performers are the JP Morgan Emerging Markets trust as well as Advance’s Developing Markets and Frontier Market trusts.
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 |
| Sector average | 221 | 39 | 49 |
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.
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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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15 comments so far. Why not have your say?
Maverick
May 25, 2012 at 12:53
So tell me something new. Anyone who has looked at the tables on the Trustnet website will already have worked that out for him or her self.
And investment trusts don't close to investors, either . . . . .
report thisRoger Lawson
May 25, 2012 at 15:54
Yes it is a general fact of life that investment trust consistently outperform unit trusts, oiecs and other open end funds. So why do most people continue to buy the latter rather than the former, even when there are directly comparable equivalents? Probably from ignorance and because they are "sold" the latter rather than have to actually make their own decisions, and go out and buy them. It's just another example of the financial world not educating retail investors because it is not in their interests to do so.
report thisjohn brace
May 25, 2012 at 16:30
don't forget that IT's are not always so cheap when held on a Platform with extra costs such as buying/selling, stamp duty;but most of all the platform annual charge for holding a Trust rather than a Unit trust.
report thisRoger Lawson
May 25, 2012 at 16:44
Any platform that imposes a charge for holding an investment trust is one to walk away from!
report thisMaverick
May 25, 2012 at 16:52
John Brace - I don't think you've quite got the point. Even when you take the platform costs into account, investment trusts outperform unit trusts.
Roger Lawson - Until very recently, unit trusts paid IFAs commission. Investment trusts didn't. One of the reasons I wouldn't trust an IFA.
report thisSteve B via mobile
May 25, 2012 at 17:21
Maverick, I think John was using that as an explanation for them being less popular. It's easy to disagree but the facts are upfront costs put people off more than the less noticeable higher rolling costs.
report thischazza
May 25, 2012 at 18:49
Sorry, guys, you need to look more carefully at the tables. Over 3 and 5 years, a fund, Aberdeen Emerging Markets, has outperformed all the ITs, and, if dealing costs, etc were taken into account, it would probably be first over 10 years as well. First State Global Emerging Markets is not far behind. It just isn't true that Emerging Markets ITs have outperfomed funds at every turn. I'm quite happy to hold my EM funds long term, and to trade the ITs...
report thisGeoff G
May 25, 2012 at 18:59
Whilst the overwhelming majority of my investments are in investment trusts, I do hold a few unit trusts - Aberdeen Emerging Markets and First State Global Emerging Market Leaders are but 2 of them. Recapping on some of the data supplied in the article:-
Templeton Emerging ( Best IT)
10years = 403%, 5 years = 80%, 3 years = 70%
Aberdeen Emerging (UT) 392%, 91%, and 85% respectively
First State Global Emerging Leaders (UT) 307%, 87%, and 70% respectively
Tell me again what I am doing wrong?
report thisNot all ETF's are the same
May 26, 2012 at 09:07
Nothing mentioned here about dealing costs on either the investment trusts or the unit trusts that will affect the overall returns.
Are the performance numbers for the investment trusts calculated on a share price or Net Asset Value basis?
What about volatility? Are the Investment Trusts more volatile due to the fact they are closed ended? Investment Trust share prices move according to supply and demand, not necessarily the true value of the underlying assets owned
What about discounts / premiums?
Can you deal in the Investment Trusts in large enough chunks? Is there liquidity?
report thisMickey
May 26, 2012 at 11:54
I find that there's a place for both on occasion. Currently using both Templeton EM IT and First State Global EM OEIC. Very happy with both, Templeton for its move into frontier markets and First State for its more cautious approach.
report thisPulpos
May 26, 2012 at 17:16
Geoff,
Maverick says ITs outperform UTs, even when taking into account platform costs. As you have both , YOU are the best person to judge this: would you say that your funds have produced a lot less money in a comparative period of time taking into account costs?
report thisGeoff G
May 26, 2012 at 20:18
I use Best Invest who levy a flat rate charge of £60pa on any ISA portfolio which contains ITs and/or ETFs. The effect of this obviously depends on the total value of the portfolio. It equates, say, to 0.1%pa on a £60k portfolio and in such a situation I do not see it greatly influencing ones judgement of ITs vs. UTs except maybe for a small value portfolio.
report thisKarl Smith
May 26, 2012 at 20:31
Jnteractive Investor doesn't have a platform charge for holding ITs, EFTs and shares. What's not to like?
report thisGeoff G
May 27, 2012 at 00:03
What's not to like?
£12/month Sipp administration fee for a start.
£10 per trade for ITs is also not the cheapest.
They make some money one way or another don't they?
report thiskarl smith via mobile
May 27, 2012 at 10:08
Who said anything about SIPPs? One has to pick one's platform to suit what you want. Iii also do a $1.50 per trade deal for regular payments. But for SIPPs go elsewhere. Of course they make their money somehow. They're not a charity.
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