EM tech companies have particularly made their presence felt this year. The sector has been single-handedly responsible for this year’s outperformance of EM equity markets.
JP Morgan Asset Management (JPMAM) has calculated that the tech sector has punched far above its already quite sizeable weight, accounting for almost half of all returns year-to-date (see chart below).
The largest tech companies such as Samsung, Taiwan Semiconductor Tencent and Alibaba have done especially well, with the former three all seeing their share price more than double in US dollar terms this year.
“Everything tech has had a great year. Moreover, apart from tech the real estate sector is the only sector that has outperformed the EM equity index (+21% in euro terms) as a whole,” says Daniel Tubbs, head of emerging market equities at Mirabaud Asset Management.
“2017 has all been about tech and internet-related companies such as Alibaba and Tencent.”
Tech – it can make or break a manager
And Tubbs has profited from this outperformance. His Mirabaud – Equities Global Emerging Markets fund has comfortably beaten the MSCI EM Index this year thanks to its overweight in tech stocks.
Those managers who have found themselves on the wrong side of the tech trade, however, have suffered.
According to Morningstar data, the two GEM funds with the largest net outflows from European investors this year, Skagen Kon-Tiki (-€3.9bn) and Aberdeen Global Emerging Markets Equity (-€3.29bn), both have strong underweights to tech which has significantly impacted their performance.
Investors have made these funds feel the consequences of missing out on the tech rally, preferring those funds that have a large tech allocation. After all, investing in an actively managed EM fund is currently the only way for European investors to be overweight EM tech (apart from buying the tech shares separately). All technology ETFs for sale in Europe focus mainly on the US Faang stocks.