Aberdeen Emerging Markets Equity and Invesco Perpetual Global Emerging Markets are among the best emerging market funds for investors unwilling to stomach higher volatility, according to data from FE Analytics.
Meanwhile, for those happy to take on more risk, JPM Emerging Markets Small Cap and Baillie Gifford Emerging Markets Growth have offered the best returns.
Like the MSCI Asia Pacific ex-Japan index, the emerging markets index is another dominated by global powerhouse China, which makes up 30.94 per cent of the MSCI Emerging Markets index.
Unlike the broader Asia Pacific index, however, the MSCI China index has outperformed the broader emerging markets benchmark by 53.59 percentage points.
Performance of indices over 10yrs
Source: FE Analytics
But the MSCI China index has been more volatile (20.67 per cent) than the wider index (19.07 per cent), meaning that it has largely benefited those funds willing to take on more single-country risk.
Yet, as the emerging market funds in the top quintile – the highest 20 per cent – for volatility demonstrate, there are a number of themes at play beyond the China growth story.
Indeed, the top-performing fund in the highest-risk quintile over a decade is the five FE Crown-rated JPM Emerging Markets Small Cap fund run by FE Alpha Manager Amit Mehta as lead manager since April 2012 alongside co-manager Austin Forey, having taken over from predecessor Greg Mattiko.
The $1.7bn fund is most heavily weighted to China, moderately overweight its MSCI Emerging Markets Small Cap index benchmark at 15.3 per cent.
India and Taiwan are also double-digit weightings within the fund’s portfolio, although both are underweight positions. Its largest underweight country is South Korea, at just 5.9 per cent of the portfolio.
Since the pair took charge the fund has returned 80.6 per cent – the fourth highest in the sector – compared with a 52 per cent gain for its benchmark.
JPM Emerging Markets Small Cap has a clean ongoing charges figure (OCF) of 1.81 per cent.
However, China remains important and is a 31.5 per cent weighting in the next-best performer, the five FE Crown-rated Baillie Gifford Emerging Markets Growth fund.
Managed by Richard Sneller since 2005 with Mike Gush joining him in 2015, it has returned 131.11 per cent with volatility of 20.58 per cent.
Large tech names such as Tencent, Alibaba and Samsung Electronics – which have been among the best performers but also the most volatile – are its top three holdings. The fund has an OCF of 0.79 per cent.
Table of bottom quintile volatility funds over 10yrs
Source: FE Analytics
Baillie Gifford Emerging Markets Leading Companies is the only fund with the highest volatility in the second quintile for returns, up by 110.96 per cent over the past decade.
Like the other Baillie Gifford fund above it has large allocations to tech names and a geographical weighting to China.
The fund has been managed by Will Sutcliffe since 2010, who took over from Sneller. It has an OCF of 0.78 per cent.
T. Rowe Price Emerging Markets Equity and UBS Global Emerging Markets Equity both sit in the third quintile for returns while there are no funds in the fourth quintile.
Three funds – Allianz Emerging Markets Equity, Candriam SRI Equity Emerging Markets and Templeton Global Emerging Markets – sit in the fifth quintile for returns.
Turning to the least volatile quintile, it is little surprise that these funds generally have an underweight position to China and other more volatile emerging market constituents.
However, three funds from this bucket have made top-quintile returns over the last decade, with the best returns coming from the £1.1bn Aberdeen Emerging Markets Equity fund.
The portfolio, has moderate underweights to China at 24 per cent, Korea (9.4 per cent) and Taiwan (5 per cent) – the three largest constituents of the MSCI Emerging Markets index.
Instead, it has a large overweight to Brazil at 11.2 per cent, India (14 per cent) and Mexico (5.5 per cent) and at a sector level is overweight financials, which make up a third of the portfolio.
The fund has returned 127.42 per cent over the past decade with volatility of 17.97 per cent. While this is still higher than the global equities benchmark (the MSCI World has seen volatility of 16.69 per cent over the period), it is lower than the MSCI Emerging Markets index’s 20.91 per cent.
Aberdeen Emerging Markets Equity has a yield of 1 per cent and an OCF of 1.21 per cent.
Staying with Aberdeen Standard Life, Aberdeen Global Emerging Markets Equity is second on the list, with returns of 120.96 per cent with volatility of 17.99 per cent.
Table of top quintile volatility funds over 10yrs
Source: FE Analytics
The third fund to achieve top quintile returns with the lowest volatility is Invesco Perpetual Global Emerging Markets run by Dean Newman.
The manager of the four FE Crown-rated portfolio noted in the latest factsheet that he is finding the Europe, Middle East and Africa region “particularly interesting” at the moment as they offer a “wide range of diversified companies with strong management teams operating in areas of growth”.
Over the past decade the £380m fund has returned 113.16 per cent with volatility of 17.91 per cent. It has an OCF of 1 per cent and a yield of 1.23 per cent.
Schroder Global Emerging Markets is the only other fund in the table to achieve a triple-digit return, up 108 per cent to investors – a second-quintile effort.
The fund that has offered investors the smoothest ride is Eaton Vance Int (Ire) Parametric Emerging Markets, which has achieved a third-quintile return of 84.29 per cent on volatility of 17.79 per cent.
Marlborough Emerging Markets and Capital International Emerging Markets (LUX) sit in the fourth quintile while MFS Meridian Emerging Markets Equity is the only fund in the bottom quintile, having returned 47.23 per cent to investors.