Less than 12 months later and such was the fanfare about the asset class that the IMA introduced a bond sector equivalent with, currently, 26 funds in it from those synonymous with regional investing such as First State, Aberdeen, Barings and Baillie Gifford alongside bond experts – and arguably regional heavyweights – Threadneedle and M&G.
But how the mighty have fallen…
Without exception, every single emerging market bond fund has made less than 2% so far this year, with just three making more than 1% since 1 January.
And without exception, every single emerging market equity fund has lost its investors money so far this year.
Looking at the equity heap with the help of FE Analytics, Hermes Global Emerging Markets returned 7.66% last year yet has lost 8.1% so far this – at 15.8% this is the biggest swing in the past 12 weeks of the year; Fidelity Emerging Markets has moved from a year-end position of 9.4% to -5.8% so far in 2014 (a 15.2% swing); Charlemagne Magna Emerging Markets Dividend Fund’s equivalent numbers are 4% down to -8.2% (a 12.3% change).
One emerging market story of 2014 has been one of poor market performance, increased volatility, uncertainty arising from the huge number of elections (at least 40 at last count), the ongoing concerns over the impact of
China’s slowdown etc.
Feint praise…
A corollary of all this is the not just poor equity performance but also – as indicated above – the speed with which the equity funds have moved into negative territory.
On the positive side, those funds at the top of the performance chart so far this year are small cap propositions
from Somerset Capital Management (-1.1%), Templeton (-2.6%) and Carmignac (-2.7%) alongside a couple of income funds from Newton (-3.3%) and Somerset again (-3.9%).
The numbers in highlights show that describing these funds as ‘the best’ is a relative description…
Given that last year only Templeton (with a 6% return) and JP Morgan Asset Management (1.5%) were dedicated small cap funds that gave positive returns last year, it looks like we are seeing an even quicker swing at this end of the spectrum.
So is this small-cap turnaround an indication – as small cap performance often is – of emerging market equity markets moving in the right upward direction?
Decision time
He was not referring to small-cap investing specifically, but Jim Solloway, managing director of SEI’s portfolio strategies group, said: “In our portfolios, we moved overweight emerging market equities versus our long-term strategic weighting in the second half of 2013, as valuations appeared to reflect many of the problems plaguing these countries – namely poor economic fundamentals and concerns over both excessive debt and tapering.”
I doubt anyone would make a decisive allocation call on the back of three-month numbers and the swing over such a short space of time, but a long-term investor looking for good relative equity opportunities and brave enough to do so may just find now is a good entry point for emerging markets.
