It wasn’t so long ago that fund groups were encouraging us to take the single-country route into the developing world, especially when it comes to BRIC. Pre-credit crisis was a particularly busy time for new launches.
From 2006 through to 2008 we had new China funds from some of the biggest retail names, including Jupiter, Threadneedle and Barings. India funds were also launched by the likes of Jupiter, Invesco Perpetual and Neptune, while to a lesser extent there was also a fair share of new vehicles focused on Brazil and Russia.
The pace of new launches has understandably slowed since, while assets in GEM funds have swelled, so much so that earlier this year Aberdeen said it was soft closing its £3.5bn Emerging Markets Fund to protect its performance prospects (though, most can still invest). This prompted speculation that First State could well do the same with its £3.1bn Global Emerging Market Leaders Fund.
High climbers
There’s good reason why investors have favoured those funds (even if it is to some extent a duopoly). Over three years, the First State vehicle has climbed 43%, while the Aberdeen fund is up 37%, according to FE Analytics. In the same period, the total return from the IMA China/Greater China sector was just 2%.
The BRICs have all had their own individual problems of course. China has had its inevitable slowdown after years of extraordinary growth; India has been impacted by high inflation and political change; Brazil and Russia have been adversely impacted by the unpredictable global demand for commodities.
Single-country funds are always going to be a riskier option, though only time will tell whether they can deliver over the long term. According to Morningstar data, only one single-country BRIC fund has delivered double-digit growth over three years, and that was another First State vehicle, India Subcontinent Fund, that is up 12%.
However, perhaps there is an advantage given that these funds are invariably smaller than their GEM counterparts, thus granting fund managers the opportunity to invest more nimbly without fear of struggling with illiquidity.
The regional option
Another option, as advocated by Aviva Investors’ fund of funds manager Peter Fitzgerald, is to invest in regional vehicles instead. I won’t go into more performance figures here, though it’s clear that some of these vehicles are again on the large size (First State Asia Pacific Leaders is a mammoth £6.4bn).
Fund groups should generally be given the benefit of the doubt if they chose to keep large funds open for further investment, especially if they have the expertise and track record that attracts the inflows in the first place. The more they have under management, the more pressure they’re under to outperform, though for the time being the alternatives are not so compelling.
