Funds managed by Fidelity, Somerset and JP Morgan are some of the most popular IA Global Emerging Markets members with the professional investors using FE Analytics, research shows, as many continue to eye the space for future outperformance. 
Until relatively recently, global emerging market equities were an unloved part of the investment landscape and suffered a challenging time as investors pulled away from them.
FE Analytics shows that the average fund in the IA Global Emerging Markets sector made a total return of just 31.62 per cent over the five years to the end of 2016, making it the worst of the main Investment Association equity peer groups. The next worst performer – IA UK All Companies – was up 69.84 per cent while the top-performing IA North America sector made 121.99 per cent.
However, things have turned around this year and, as the chart below illustrates, the IA Global Emerging Markets sector has been the highest returner over 2017 to date with a 23.05 per cent total return in sterling. IA North America is now the worst performer after making less than 7 per cent
Performance of sectors over 2017 to date
Source: FE Analytics
What’s more, many investment commentators believe this trend could continue as more stable commodity prices, healthy economic growth rates, favourable demographics and relatively attractive valuations support the investment case for emerging market equities.
In a recent FE Trustnet article, Ashmore Group head of research Jan Dehn argued that investors should “ruthlessly exploit” any short-term sell-offs in emerging markets to increase their exposure to the asset class.
“A strong emerging markets recovery is underway, which is backed by valuations, technicals and fundamentals. Investors who do not yet have exposure should use such opportunities to allocate, because they are unlikely to get better opportunities to buy than in such temporary pullbacks,” he said.
With this in mind, we used the FE Analytics Market Intel tool to find out which were professional investors’ most popular IA Global Emerging Markets funds during the first nine months of 2017.
The following table shows the 25 most heavily researched emerging market equities fund on FE Analytics. Nick Price’s £2.2bn Fidelity Emerging Markets fund is in the top spot, followed by MI Somerset Emerging Markets Dividend Growth and Aberdeen Emerging Markets Equity.
Fidelity Emerging Markets has a strong track record and has made 28.36 per cent over 2017 so far, compared with a 23.05 per cent gain from the average IA Global Emerging Markets member and 24.45 per cent from the MSCI Emerging Markets index. It’s also in the peer group’s top quartile over three and five years.
Source: FE Analytics Market Intel Tool
Given Price’s accountancy background, the process behind the fund focuses on analysing company balance sheets and seeks out companies demonstrating high quality, consistent and stable growth at a reasonable price. Top holdings include South African internet and media group Naspers, Taiwan Semiconductor Manufacturing Company and India’s HDFC Bank.
Square Mile Investment Consulting & Research, which rates the fund at ‘A’, said: “Price aims to take risks, primarily at the stock level, in a measured manner and while the mandate empowers him with plenty of flexibility, we think he has an innate awareness of risk.
“This is a fund that can go through periods of feast or famine and for instance, it is likely to lag the wider market during times when riskier stocks are in demand. Nonetheless, we see it as a solid choice for investors who are prepared to hold the fund over a full cycle.”
Fidelity Emerging Markets has a 0.99 per cent ongoing charges figure (OCF).
MI Somerset Emerging Markets Dividend Growth, which is the second most researched IA Global Emerging Markets fund, is headed up by FE Alpha Manager Edward Lam with Edward Robertson as deputy.
As the name suggests, the portfolio is built around quality companies with strong dividend growth and sustainability. Its largest holdings are South Korean memory semiconductor supplier SK Hynix, Hungary’s Otp Bank and Samsung Electronics.
FE Invest, which has the fund on its Approved List, said: “Conservative management and a willingness to have a high cash weighting should mean the fund is less risky than its peers and will usually do better than the market when times are tough but not keep up in the strongest markets.”
The £1.5bn fund has made 23.09 per cent over 2017 to date, putting it in the sector’s second quartile. It is also currently second quartile in its peer group over one, three and five years, while an initial investment of £10,000 made five years ago has since yielded £1,105 in income payouts.
MI Somerset Emerging Markets Dividend Growth has a 1.18 per cent OCF and is yielding 2.10 per cent.
Performance of funds vs sector and index over 2017 to date
Source: FE Analytics
The third most researched member of the sector is the £1.8bn Aberdeen Emerging Markets Equity fund, which is managed by Aberdeen’s highly respected global emerging markets equity team.
While one of the space’s flagship offerings, it has made third quartile returns over three years and is in the fourth quartile over five years after making 42.17 per cent. It is also in the bottom quartile over 2017 to date with a total return of 16.57 per cent.
Square Mile’s analysts said: “The emphasis on quality can lead to the fund delivering a highly variable performance relative to the index, although in general, it has tended to behave much better in falling markets. The fund may well lag its performance targets from time to time and it is unlikely to suit investors seeking indexlike returns but we think it holds appeal for investors with a longterm horizon.”
Among the fund’s largest holdings are Samsung Electronics, HDFC Bank and Taiwan Semiconductor Manufacturing Company. However, its biggest position is in the Aberdeen Global China A Share Equity fund at 5.4 per cent of assets; Chinese/Hong Kong equities is the fund’s largest country allocation at 17.7 per cent.
Aberdeen Emerging Markets Equity has an OCF of 1.25 per cent.