Star performers: Which EM funds shine for advisers?

Joanna Faith asks advisers for their top global emerging markets fund picks.

In a reversal of trends, money has been moving out of emerging markets in recent weeks back into the hands of the developed economies. Inflationary pressures are the main cause of this about turn.

However, some of the UK’s top global fund managers are urging caution when it comes to fleeing EMs. Stephen Docherty, head of global equities at Aberdeen Asset Management, for instance, says investors may find attractive opportunities outside of emerging economy stock markets, but developing economies will continue to be a key growth theme. “They are not on a life support machine, unlike a number of the Western economies that are propped up by central-bank quantitative easing,” he adds.

Meanwhile, Investec’s Max King believes the short-term setback in EMs represents a buying opportunity.

So for investors still lured by the appeal of potential higher returns from the likes of Asia, Eastern Europe and Latin America, which are the top funds?

Meera Patel, senior analyst, Hargreaves Lansdown

“You would be surprised how many emerging market funds are available, but how few managers have a decent stock-picking record. When we run our analysis, there are two teams that always come up trumps: Aberdeen and First State. In our view, they are among the best in their field and have consistently demonstrated excellent stock picking abilities.
The Aberdeen Emerging Markets fund is managed by Devan Kaloo, who is part of the legendary Hugh Young’s team. The First State Emerging Market Leaders fund is managed by Jonathan Asante, who is a member of another superb team headed by Angus Tulloch.
Both funds have a focus on quality, whether it is quality of the balance sheet or management. This makes them cautious, and so the funds could underperform in a strong rally, but they make up for any under­performance during tougher periods. This strategy has proven to deliver outstanding long-term returns.”

Sheridan Admans, investment adviser, The Share Centre

"First State’s Global Emerging Market Leaders fund invests in approximately 30 to 60 companies, favouring large and mid-cap companies that are held for the longer term, reducing portfolio turnover. The manager, Jonathan Asante, prefers companies with a good management track record and long-term earnings visibility. He combines the stock-picking approach with considerations of the broader economic environment in his decision making process.
Aberdeen’s Emerging Markets fund also favours a blend of large and mid-cap companies. The team focuses on a bottom-up approach with the main emphasis on absolute returns rather than the benchmark. Investments are generally bought on the basis of being held for the longer-term rather than regularly traded. The manager of JP Morgan’s Emerging Markets fund, Austin Forey, is supported by 50 investment professionals around the globe providing extensive local knowledge.”

Adrian Lowcock, senior investment adviser, Bestinvest

“Aberdeen’s Emerging Markets fund is run by the group’s emerging markets team, led by Devan Kaloo. It invests across all emerging markets with a focus on high quality companies.
Because of the team’s demanding valuation criteria the fund is relatively conservative and this may mean it underperforms in strongly performing markets, although it should fare better in falling markets.
First State Global Emerging Markets Leaders fund, run by Jon Asante and his team, invests in a diverse selection of high quality stocks of various sizes.
Asante favours companies with long-term growth prospects that he sees as trading at reasonable valuations.
Historically, this investment style has tended to provide greater downside protection, although it can also result in the fund lagging strongly rising markets.”

Fund performance