Using data from FE Fundinfo, Portfolio Adviser shines a spotlight on the funds across different sectors that are smaller than £200m in size but have achieved top-quartile three-year returns relative to their average peer. This month, we look at IA Global Emerging Markets.
While there have been bright spots among global emerging market equities over the past three years – with India a particularly resounding success story – chronic poor performance from China and geopolitical uncertainty has weighed on the sector in aggregate over the medium term.
According to data from FE fundinfo, the average fund in the IA Global Emerging Markets sector has fallen by more than 10% in total return terms over three years to time of writing (9 September 2024).
But despite the challenging backdrop, there are a number of funds that have nevertheless managed to achieve stellar returns – many of which could be flying beneath investors’ radars due to their small size.
Lazard Emerging Markets Equity
Fund size: £161.8m
The first fund on our list weighing in at less than £200m in size is Lazard Emerging Markets Equity, at £161.83m. It is the single best performer on the list with a total return of 15.6% over three years. Co-managers James Donald, Monika Shrestha, Rohit Chopra and Ganesh Ramachandran invest in companies included in the MSCI Emerging Markets index with a market cap of at least $300m (£225.2m) which are deemed to have sufficient liquidity, although generally they focus their attention on companies with markets caps of about $300m.
The fund is also able to invest in companies that derive more than 50% of their net assets from emerging market countries, even if they are not domiciled there.
The fund’s largest company weightings are currently TSMC at 4.3%, China Construction Bank at 3%, and Indian telecommunications infrastructure company Indus Towers at 2.8%. The fund comprises 78 stocks in total.
WisdomTree Emerging Markets Equity Income Ucits ETF
Fund size: £108.3m
This Ucits ETF tracks WisdomTree’s own Emerging Markets Equity Income index, which comprises emerging market companies in the top 30% bracket for their dividend yield, which do not fall into the bottom 10% of the firm’s corporate risk score (CRS).
The index is “rules-based” and “fundamentally weighted”, according to WisdomTree, with composite companies needing to meet liquidity requirements, pass the firm’s ESG screen, and to have paid dividends over the previous yearly cycle. Companies’ weightings are based on the dividends they paid during the previous annual cycle, with those which have paid higher dividends and achieved top 20% CRS scores accounting for larger proportions of the index.
The fund was launched in 2014 and pays a dividend yield of 6.23%. It has achieved a total return of 14.9% over three years to time of writing.
BNY Mellon Emerging Income
Fund size: £118.6m
Lead managed by Zoe Kan, with Alex Khosia at the helm as deputy manager, this £118.6m fund invests in emerging market equities with a time horizon of at least five years. While it is benchmarked against the MSCI Emerging Markets NR index, its portfolio is not influenced by its benchmark and performance will often differ vastly. For instance, over the past five years, the fund has returned 21.9% compared with the index’s gain of 12.7%.
The fund’s largest geographic weighting is to Taiwan at 18.5%, with Taiwan Semiconductor Manufacturing accounting for 8.7% of the fund. It also holds 16.9% in Indian equities, 13.7% in South Korea – with a 7.6% allocation to Samsung Electronics, and 10.6% in Mexico – with Walmart Mexico in its list of top five holdings.
WisdomTree Emerging Markets Small Cap Dividend Ucits ETF
Fund size: £27.52m
Launched in 2014, this fund tracks WisdomTree’s Emerging Markets Small Cap Dividend index, which is constructed similarly to the aforementioned Emerging Markets Equity Income index. In this instance, however, only the companies ranked in the bottom 10% by market cap make the cut.
The fund, which is categorised as Article 8 under SFDR, has a 29.3% exposure to Taiwan, 12.6% in India, 11.7% in South Korea and 10.1% in South Africa. Largest individual holdings, which account for just over 1% of the overall portfolio, include Truworths International, one of South Africa’s leading fashion retailers; BS Financial Group, a Korea-based banking business; and Mr Price Group, another fashion retailer listed on the Johannesburg Stock Exchange.
Over three years, it has achieved a total return of 12.2%, and currently has a dividend yield of 4.1%.
Guinness Emerging Markets Equity Income Fund
Fund size: £5m
This fund, which has returned 10.4% in total return terms over three years, invests in companies that derive at least 50% of their revenues from emerging market countries. At least 80% of the stocks in the portfolio must also pay a dividend.
Managers Edmund Harriss and Mark Hammonds, who have been at the fund’s helm since 2016 and 2017, respectively, look for companies offering sustainably higher returns than the benchmark, and which have been undervalued by the broader market. The managers also seek companies exhibiting dividend growth over time.
Examples of the largest holdings within the 36-stock portfolio include Taiwanese window coverings manufacturer Nien Made Enterprise, China Medical System and Indian bike manufacturer Bajaj Auto. Its largest regional allocation is to China at 35%, followed by Taiwan and Brazil at 22.3% and 9%, respectively. The fund currently yields 3.8%.
This article originally appeared in the October issue of Portfolio Adviser magazine
