Investors looking to buy into emerging markets have increasingly seen their options limited when it comes to fund selection, with a number of the best known managers shutting their doors to new money over capacity fears.
This year has seen the two big guns in the sector, Aberdeen and First State, soft-close nine specialist emerging market mandates between them.
Aberdeen restricted inflows into its £8.5 billion Global Emerging Markets Equity and £3.4 billion Emerging Markets funds at the end of February.
This followed a similar move by First State in January to soft-close five funds, including its Greater China Growth and Latin America mandates and then in August, the group added its £6.4 billion Asia Pacific Leaders and £3 billion Global Emerging Market Leaders funds to the list.
Lazard and Baillie Gifford have also soft-closed their main emerging market funds, meaning investors have to look beyond the traditional names to gain exposure to the asset class.
But with more than 70 funds in the global emerging markets sector, which names are wealth managers backing to fill the void for new clients that cannot access the vehicles many existing clients already hold?
Here we outline the likely contenders:
James Calder, research director, City Asset Management on Charlemagne Magna Emerging Markets Dividend
One-year total return to end October: 13.2%
One-year sector average: 4.4%
‘We have found that Aberdeen and First State get the millions and the others get the Isa money,’ says Calder. ‘There is not much choice in the sector and a lot of our clients are cautious and only allocate a small amount to emerging markets, so often only hold one fund.
‘One fund we do like is Charlemagne Emerging Markets Dividend. Charlemagne is an emerging markets specialist – that is all it does – and the fund has a chunky yield in excess of 5%, which is attractive to clients.
‘We like it as a manager; its research is very thorough and it has a lot of access to the region.’
Tony Yousefian, chief investment officer, OPM Fund Management on M&G Global Emerging Markets and Fidelity Institutional Emerging Markets
M&G three-year total return to end Oct: 20.5% Fidelity three-year total return to end Oct: 20.5%
M&G three-year sector average: 16.5% Fidelity three-yearsector average: 16.5%
Matthew Vaight took over as lead manager of the M&G Global Emerging Markets fund in September after his then co-manager Michael Godfrey left the firm.
‘He has done an extremely good job on the fund on a risk-adjusted returns basis and the fund has a nice information ratio,’ says Yousefian. ‘It generally has a beta of less than one.
‘The Fidelity Institutional Emerging Markets fund, run by Nick Price, is effectively style agnostic and has a beta of less than one. It has done well on a risk-adjusted returns basis and the volatility is in the middle of the pack.’
Yousefian adds that although Price runs the fund out of London, he travels extensively, visiting companies around the world.
Jon Miller, head of research, Citywire on Skagen Kon Tiki
Three-year total return to end October: 26.2%
Three-year sector average: 16.5%
‘Kristoffer Stensrud, who runs Skagen Kon Tiki, is a manager who has long been catching our eye,’ says Miller. ‘Based in Norway, he has been on our radar since mid-2000, when Citywire first started rating fund managers outside the UK.’
‘The fund received UK tax-reporting status in 2010 and has consistently outperformed through a value approach. Stensrud currently thinks a number of consumer staple names have become expensive and he is repositioning his portfolio to tap the emerging consumer through lesser-known companies within industrials and materials.’
George Bromfield, investment director, Brooks Macdonald on UBS Emerging Market Equity Income
One-year total return to end October: 8.1%
One-year sector average: 4.4%
While a firm supporter of the Aberdeen and First State funds, Bromfield says the possibility they may at some point hard-close means his eyes are ‘very much open’ to alternatives. ‘It has been a challenge to find a fund with as strong a track record or of a large enough size to justify addition to our core global emerging markets buylist,’ he adds.
He is looking closely at the emerging market equity income sector and points to the UBS Emerging Market Equity Income fund as one he backs. ‘These equities are researched by the UBS emerging market and Asian team, which manages $20 billion of assets. The team then looks for companies where dividends are viewed as stable and/or likely to increase. The best companies are selected, with a portfolio of 40 to 80 stocks constructed.’