Key Points:
- The GEM region has six funds with a 5-year track record (2005-2009)
- First State GEM Leaders stands out in terms of annualised performance and expense
- RIC Emerging Markets Eqty ClJ USD has the lowest expense ratios of funds on FSM
- Aberdeen Global Emerging Markets does not have a 5-year track record as at end-2009, but stands out in terms of y-o-y performance, annualised performance and expense ratios, making it a strong fund in the GEM space
The Global Emerging Markets (GEM) equity region is a hotly contested piece of the investment pie – a total of ten fund houses on Fundsupermart have funds investing in the region. With 11 funds fighting over the same space, climbing to the top of the performance charts is no easy feat.
Yet one fund, has done just that, outperforming other funds with a 5-year track record. Here’s how.
The 5 Year-Old Funds
The significance of 5 years in the investing world boils down to the observation that market cycles tend to last, on average, about 5 years. A fund that has experienced a full market cycle has been through one boom-bust cycle and we can get a better gauge on how the fund will perform under various market conditions.
Having said that, the six funds that meet the 5-year criteria (2005-2009) (along with the MSCI Emerging Markets Index) are shown in Table 1.
The only index-beater, and top of the table, is First State GEM Leaders with a 12.35% return, annualised over 5 years. Other funds that came close to beating the index, include RIC Emerging Markets Eqty ClJ USD (11.31%) , Schroder Emerging Markets Fund (11.11%) and JPM Emerging Markets Equity A (dist) USD (10.49%).
On a year-on-year basis, First State GEM Leaders shows its defensive nature in 2008, outperforming the index by more than 10% in a down year. As at 1H2010, First State GEM Leaders remains the top-performer, once again outperforming the index. Of note is JPM Emerging Markets Equity A (dist) USD in 1H2010, which also beat the index. The fund also outperforms on the upside, beating the index in 2005 and 2006.
The biggest outperformance comes from RIC Emerging Markets Eqty ClJ USD in 2009, with a strong outperformance of 80.58%...but don’t get carried away by one year of returns. The interesting thing about RIC Emerging Markets Eqty ClJ USD is its expense ratio.
Here is where RIC Emerging Markets Eqty ClJ USD shines – its competitive expense ratio. At 1.72%, it’s the lowest in the industry. While not the lowest, First State GEM Leaders keeps its expense ratio competitively low at 1.85%.
The Solid Stalwart: First State GEM Leaders
First State GEM Leaders is definitely the fund to beat in the emerging market space. Its competitive expense ratios and track record of solid defensive performance make it a challenge for any fund to meet.
Thankfully, the challenge is met by a younger fund, incepted on 2 September 2005 and just shy of the 5-year track record (as at end-2009) that would have put it on par with the rest. Meet Aberdeen Global Emerging Markets. And here’s how it beats the index, and its peers, despite not having a 5-year track record.
How Aberdeen Global Emerging Markets Takes On The GEM Space
Table 4 summarises the performance of First State GEM Leaders, Aberdeen Global Emerging Markets, and the MSCI Emerging Markets Index.
| Table 4: Performance comparison 1H2010 – 2006 |
Aberdeen Global Emerging Markets |
22.19% |
24.51% |
-44.23% |
75.68% |
0.23% |
10.49% |
First State GEM Leaders |
21.23% |
21.21% |
-41.57% |
62.99% |
-3.43% |
8.76% |
MSCI Emerging Markets Index |
22.00% |
30.79% |
-53.25% |
74.65% |
-6.62% |
6.84% |
source: iFAST compilations, the performance figures are calculated using bid-to-bid prices, with any income or dividends reinvested. MSCI Emerging Markets Index total returns gross dividends |
Impressive performance from Aberdeen Global Emerging Markets propels it ahead not just in terms of annualised returns, but also every year since 2006, with the exception of 2007.
We then compared the funds in terms of Sharpe ratios, a measure of risk-adjusted performance in Table 5. Sharpe ratios are a measure of risk-adjusted performance. It compares the amount of returns you stand to get, relative to the amount of risk. With the Sharpe ratio higher is better.
Here Aberdeen Global Emerging Markets lags First State GEM Leaders by a slim margin. Both funds however beat the MSCI EM Index, a testament to their consistent outperformance.
In terms of expense ratios, Aberdeen Global Emerging Markets and First State GEM Leaders stand roughly on par – both have very competitive expense ratios, among the lowest in the GEM space.
In terms of turnover ratios, both funds display similarly low figures. According to 2010 annual reports, Aberdeen Global Emerging Markets reports 0% turnover for both 2010 and 2009, typical of Aberdeen’s buy-and-hold approach. First State GEM Leaders reports 14.9% and 36.2% for 2010 and 2009 respectively, suggesting a medium-to-long term holding period of their assets. Neither fund employs an aggressive trading approach to investing.
Conclusion
The GEM space is undoubtedly competitive, with big names all working to impress with returns. First State GEM Leaders impresses with its 5-year track record and its competitive expense ratio. With an even more impressive, albeit shorter, track record, Aberdeen Global Emerging Markets definitely deserves its Recommended Fund status and is a strong fund for investors to consider when looking to take advantage of the GEM space.
Did this article help you make an investment decision? Have a suggestion for us? Tell me at nicholastay@fundsupermart.com |
CPFIS Registered Investment Administrator
