While Asia-Pacific accounts for around 60% of the emerging markets benchmarks, 63 out of 163 global emerging market funds (38%) allocated less than 60% to Asia-Pacific.
Funds that allocated at least 60% of their assets in the region performed slightly better compared to those that invested less than 60%, however more than half of them still underperformed the index on a one-year, three-year and five-year basis, ending 30 April.
|
APAC allocation |
YTD performance |
1-year performance |
3-year performance |
5-year performance |
|
% of funds outperformed (>60% APAC allocation) |
48% |
40% |
36% |
25% |
|
% of funds outperformed (60%> APAC allocation) |
40% |
34% |
32% |
45% |
|
Ave. returns (>60% APAC allocation) |
13.99% |
17.70% |
1.22% |
0.80% |
|
Ave. returns (60%> APAC allocation) |
13.20% |
16.90% |
0.99% |
1.78% |
|
MSCI Emerging Markets Index |
13.95% |
19.58% |
2.16% |
1.85% |
Source: FE Analytics
There are indications, however, that increasing allocation in the Asia-Pacific region may help capture slightly more returns. According to FE data, a bigger percentage of funds outperformed the index and their average returns were also higher if they allocated more than 70% of assets in the region.
|
|
YTD performance |
1-year performance |
3-year performance |
5-year performance |
|
% of funds outperforming the index (>70%) |
55.88% |
48.39% |
53.57% |
30.00% |
|
Ave. returns (70%>) |
13.87% |
18.57% |
2.30% |
1.32% |
Source: FE Analytics
There are around 34 funds that have allocated more than 70% of their assets in Asia-Pacific, the data shows.
Difficulties of EM investing
James Cheo, an investment strategist at Bank of Singapore, is not surprised by the number of emerging market funds that are underperforming.
“Emerging markets investing is actually more challenging because there is a greater information asymmetry. Most companies are not covered as much, compared to developed markets,” he told FSA.
In addition, emerging market equity fund managers may face lower liquidity and more political risks, he added.
When choosing emerging market funds, Cheo said that he looked at whether a fund had consistently beaten the benchmark for a period of 10 to 15 years.
Since the region is a mix of developed, emerging and frontier markets, he said he liked managers who specialised in one or two different markets, such as those that covered China, Korea or Taiwan.
Cheo also believes that fund managers with on-the-ground capabilities in the region have more advantages than those who are based outside the region.
For example, it is easier for Hong Kong-based analysts or managers to contact China-based companies. “Most of them know the companies very well,” he added.
Does fund domicile matter?
The analysis only included funds that are domiciled outside of Hong Kong and Singapore.
There are only seven global emerging market and BRIC funds that are domiciled in either Hong Kong or Singapore, according to FE data.
The average returns of these funds, which also underperformed the index in all four periods with the exception of the one-year period, indicate that the domicile or the legal structure are not factors in determining how a fund will perform in the future.
|
|
YTD performance |
1-year performance |
3-year performance |
5-year performance |
|
# of funds outperformed |
2 |
5 |
4 |
2 |
|
Ave. returns |
13.66% |
19.74% |
2.06% |
1.34% |
Source: FE Analytics
Roger Bacon, head of investments for Asia-Pacific at Citi Private Bank, said at Fund Forum Asia 2017 last month that his starting point when choosing a fund was not its legal structure.
“The first task is to identify best of breed differentiated alpha source, work through it, understand whether it is repeatable, whether it is consistent, and that is our core building block,” he said.
The legal structure only comes in second after identifying the best funds, to determine whether the product can be sold in a particular market.
Bank of Singapore’s Cheo echoed Bacon’s sentiments with respect to the fund structure.
“It would not affect the fund manager’s performance. It’s more of a regulatory point of view of how a fund could be sold, so it’s a small factor when it comes to fund performance.”
Best and worst performing funds on a one-, three- and five-year basis ending 30 April, according to FE data.
|
5 best one-year performing funds |
|||
|
Fund Name |
Return |
Domicile |
APAC allocation (%) |
|
Charlemagne Magna New Frontiers in US |
39.92 |
Ireland (IRL) |
23 |
|
Vontobel mtx Sustainable Emerging Markets Leaders in US |
30.3 |
Luxembourg (LUX) |
70.7 |
|
HSBC GIF BRIC Equity in US |
28.94 |
Luxembourg (LUX) |
51.81 |
|
HSBC GIF BRIC Markets Equity in US |
28.49 |
Luxembourg (LUX) |
51.97 |
|
Templeton BRIC in US |
28.14 |
Luxembourg (LUX) |
69.14 |
|
5 best three-year performing funds |
|||
|
Charlemagne Magna New Frontiers in US |
9.27 |
Ireland (IRL) |
23 |
|
Vontobel mtx Sustainable Emerging Markets Leaders in US |
9.2 |
Luxembourg (LUX) |
70.7 |
|
JPM Emerging Markets Small Cap in US |
8.36 |
Luxembourg (LUX) |
50 |
|
Templeton Emerging Markets Smaller Companies in US |
7.74 |
Luxembourg (LUX) |
55.7 |
|
HSBC GIF BRIC Equity in US |
7.2 |
Luxembourg (LUX) |
51.81 |
|
5 best five-year performing funds |
|||
|
Charlemagne Magna New Frontiers in US |
11.55 |
Ireland (IRL) |
23 |
|
Schroder ISF Frontier Markets Equity in US |
10.5 |
Luxembourg (LUX) |
17.49 |
|
Templeton Emerging Markets Smaller Companies in US |
7.54 |
Luxembourg (LUX) |
55.7 |
|
JPM Emerging Markets Small Cap in US |
6.82 |
Luxembourg (LUX) |
50 |
|
Vontobel mtx Sustainable Emerging Markets Leaders in US |
5.48 |
Luxembourg (LUX) |
70.7 |
|
5 worst one-year performing funds |
|||
|
Fund Name |
Return |
Domicile |
APAC allocation (%) |
|
Castlestone Emerging Markets Equity High Yeild & Premium Income in US |
-5.57 |
Virgin Islands – British (VGB) |
48.19 |
|
GS N-11 Equity Portfolio in US |
1.39 |
Luxembourg (LUX) |
63.99 |
|
BCM Vitruvius Emerging Markets Equity in US |
4.04 |
Luxembourg (LUX) |
61.4 |
|
MultiConcept White Fleet OLZ Efficient World® Emerging Markets Equity in US |
4.16 |
Luxembourg (LUX) |
65.21 |
|
Morg Stnly Breakout Nations in US |
4.63 |
Luxembourg (LUX) |
46.52 |
|
5 worst three-year performing funds |
|||
|
Castlestone Emerging Markets Equity High Yeild & Premium Income in US |
-24.07 |
Virgin Islands – British (VGB) |
48.19 |
|
Pictet Emerging Markets High Dividend in US |
-10.68 |
Luxembourg (LUX) |
61.7 |
|
BCM Vitruvius Emerging Markets Equity in US |
-7.48 |
Luxembourg (LUX) |
61.4 |
|
GS N-11 Equity Portfolio in US |
-6.28 |
Luxembourg (LUX) |
63.99 |
|
Parvest Equity World Emerging Low Volatility in US |
-3.82 |
Luxembourg (LUX) |
67.3 |
|
5 worst five-year performing funds |
|||
|
Castlestone Emerging Markets Equity High Yeild & Premium Income in US |
-20.95 |
Virgin Islands – British (VGB) |
48.19 |
|
Emirates Emerging Market Equity in US |
-3.89 |
Jersey (JSY) |
66 |
|
UBS (CH) Equity Emerging Markets High Dividend (USD) GTR in US |
-3.31 |
Switzerland (CHE) |
62.9 |
|
Legg Mason QS Emerging Markets Equity in US |
-2.93 |
Ireland (IRL) |
61.31 |
|
iShares MSCI Emerging Markets Islamic UCITS ETF TR in US |
-2.49 |
Ireland (IRL) |
78.75 |
