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These 2 Market-Beating Equity Funds Dominate Emerging Markets…Again January 6, 2012
As 2011 passes, we look towards one of the most attractive regions for equity returns – Emerging markets – and which funds have consistently demonstrated their ability to outperform markets.
Author : Nick Tay


Untitled Document

Key Points:

- Five of eight GEM funds outperformed the benchmark in 2011, on a calendar year basis
- On a 5-year basis, funds with repeated outperformance include First State GEM Leaders, Aberdeen Global Emerging Markets, Fidelity Emer Mkt A-SGD, Schroder Emerging Markets Fund and RIC Emerging Markets Eqty ClJ USD
- On a 5-year annualised basis, two recommended funds beat the benchmark return of -0.86%: First State GEM Leaders (4.08%), Aberdeen Global Emerging Markets (4.43%)
- In terms of expense ratios, First State GEM Leaders, Aberdeen Global Emerging Markets and RIC Emerging Markets Eqty ClJ USD have the three lowest expense ratios

A recent article puts forth the argument that at around 1.55X, PB ratios of Emerging Markets (EMs) are attractive from a valuations perspective (link).

To take the discussion further, this article will look at the EM equity funds available on the platform, and compare how they have performed against one another.

If you’ve been tracking the performance of EM funds, you’ll know we’ve written quite extensively about the performance of EM funds in 2010 (link) and again in September 2011 (link). Each time, several funds have come out ahead of the rest, and at the close of 2011, these funds have apparently developed a habit of outshining the rest.

So let’s start with 2011 performance.

The Correction of 2011

After the recovery of 2009, 2010 saw moderating returns, and 2011 saw a correction of -17.56% (as at end-2011). Despite the market (represented by the MSCI Emerging Market Index) correction, many funds managed to outperform the market. Table 1 compiles the 2011 returns of the equity funds with a 5-year track record, available on the platform.

Table 1: Calendar Year Performance, 2011

Fund

2011

First State GEM Leaders -6.90%
Aberdeen Global Emerging Markets -11.25%
Fidelity Emer Mkt A-SGD -16.20%
Schroder Emerging Markets Fund -16.82%
RIC Emerging Markets Eqty ClJ USD -17.03%
MSCI Emerging Market Index -17.56%
JPM Emerging Markets Equity A (dist) USD -18.17%
ING Inv Emg Mkts USD Cl X -24.27%
HGIF Glb Emg Mkts Eq-AD SGD -26.76%
Outperformance in bold. Source: iFAST compilations, in SGD, dividends reinvested.

Five of eight funds with a 5-year track record outperformed the market in 2011. These funds include our recommended funds – First State GEM Leaders, Aberdeen Global Emerging Markets – as well as funds such as Schroder Emerging Markets Fund, Fidelity Emer Mkt A-SGD and RIC Emerging Markets Eqty ClJ USD.

For a more comprehensive comparison of calendar year performances, we look at calendar year performances of the past 5 years, from 2007 to 2011. Table 1.1 displays the calendar year returns for the funds.

Table 1.1: Historical Calendar Year Performance, end-2006 to end-2011
Fund 2007 2008 2009 2010 2011
First State GEM Leaders 21.21% -41.57% 62.99% 13.66% -6.90%
Aberdeen Global Emerging Markets 24.51% -44.23% 75.68% 14.73% -11.25%
Fidelity Emer Mkt A-SGD 34.17% -59.88% 69.92% 9.31% -16.20%
Schroder Emerging Markets Fund 30.17% -51.73% 68.22% 1.48% -16.82%
RIC Emerging Markets Eqty ClJ USD 30.16% -54.86% 80.67% 8.60% -17.03%
MSCI Emerging Market Index 30.79% -53.25% 74.65% 8.76% -17.56%
JPM Emerging Markets Equity A (dist) USD 29.04% -53.09% 66.34% 7.73% -18.17%
ING Inv Emg Mkts USD Cl X 27.65% -57.07% 68.15% 4.73% -24.27%
HGIF Glb Emg Mkts Eq-AD SGD 34.12% -57.44% 62.85% 5.00% -26.76%
Outperformance in bold. Source: iFAST compilations, in SGD, dividends reinvested.

Looking at the past 5 years shows Aberdeen Global Emerging Markets outperforming in four of the last five years. Funds that outperformed in three of five years include First State GEM Leaders, and Fidelity Emer Mkt A-SGD.

Funds that outperformed in two of five years include Schroder Emerging Markets Fund, and RIC Emerging Markets Eqty ClJ USD. Funds that outperformed in one of five years include JPM Emerging Markets Equity A (dist) USD and HGIF Glb Emg Mkts Eq-AD SGD.

Calendar years give an indication of how funds perform on a yearly basis, a fairly short time frame. To appreciate the funds’ performance over longer periods, we consider the annualised return of the funds, as shown in table 2.

Annualised return looks past the volatility of yearly spikes and dips, and represents a single yearly return compounded over 5 years. This gives a better indication of the return experienced by investors with a 5-year time horizon.

Table 2: 5-yr Annualised returns, end-2006 to end-2011
Fund Annualised return
Aberdeen Global Emerging Markets 4.43%
First State GEM Leaders 4.08%
MSCI Emerging Market Index -0.86%
RIC Emerging Markets Eqty ClJ USD -0.89%
Schroder Emerging Markets Fund -2.25%
JPM Emerging Markets Equity A (dist) USD -2.36%
Fidelity Emer Mkt A-SGD -3.48%
ING Inv Emg Mkts USD Cl X -6.08%
HGIF Glb Emg Mkts Eq-AD SGD -6.49%
Source: iFAST compilations, in SGD, dividends reinvested.

Looking at table 2, two funds – Aberdeen Global Emerging markets, and First State GEM Leaders – managed to outperform the index by a convincing margin of 5.29% and 4.94%.

Looking at returns on a calendar year and annualised basis suggests that of the eight funds we examined, two stand head and shoulders above the rest.

This isn’t to say that the other funds can’t perform.

One strong fund is RIC Emerging Markets Eqty ClJ USD, which has kept pace with the benchmark over a 5-year time frame, underperforming by a margin of less than 0.10pp (percentage point, the arithmetic difference between two percentages), and in at least one year (2009) returned a very strong return of 80.67%.

Another contender is Fidelity Emer Mkt A-SGD, whose performance was dampened in 2009 when it underperformed the rally in 2009, but has since outperformed the MSCI EM Index in 2010 and 2011.

Expense Ratios

Expense ratios are a fairly straightforward measure – low cost is better than high cost.

Table 3 summarises the expense ratios for the funds we’ve looked at.

Table 3: Expense Ratios
Fund Expense Ratio
RIC Emerging Markets Eqty ClJ USD 1.66%
Aberdeen Global Emerging Markets 1.79%
First State GEM Leaders 1.87%
JPM Emerging Markets Equity A (dist) USD 1.90%
HGIF Glb Emg Mkts Eq-AD SGD 1.92%
Fidelity Emer Mkt A-SGD 1.95%
Average 1.95%
Schroder Emerging Markets Fund 2.10%
ING Inv Emg Mkts USD Cl X 2.38%
source: iFAST compilations, all data compiled 4 January 2012.

From Table 3, the majority of funds maintain a lower-than-average expense ratio. The lowest expense ratio held by RIC Emerging Markets Rqty ClJ USD at 1.66%. Both Aberdeen Global Emerging Markets (1.79%) and First State GEM Leaders (1.87%) also keep their expense ratios below average, and when coupled with their performance, clearly establish an edge over their peers.

Summary
With that, we’ve examined the Emerging Market Equity landscape, and come up with two giants in the space – Aberdeen Global Emerging Markets, and First State GEM Leaders – as well as several equally competent funds that could, under the right circumstances, surge ahead.

Related articles

Chart Talk 2012-01: RIC Emerging Markets Eqty ClJ USD
Chart Talk 2012-01: First State GEM Leaders
Chart Talk 2012-01: Aberdeen Global Emerging Markets
A “Most Useful” Valuation Measure Emerging Market Investors Must Follow
Ask The Experts: A “Most Useful” Valuation in Emerging Markets And One Key Risk

You can reach Nick Tay via email, Facebook, or with a post on the forum. I promise to read all feedback, and will make every effort to respond where possible. If you know of anyone who can benefit from this article, do a favour and share it with them– but only if you think it’s worth sharing!


iFAST and/or its licensed financial adviser representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the article, or any unit trusts or Singapore Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.


 
RELATED FUNDS
Schroder Emerging Markets Fund
Aberdeen Global Emerging Markets
Fidelity Emerging Market Fund A SGD
First State GEM Leaders
JPM Emerging Markets Equity A (dist) USD
RIC Emerging Markets Eqty ClJ USD
HGIF Glb Emg Mkts Eq-AD SGD