Backing young funds is a risk that some investors do not take, waiting instead until these new portfolios have a three-year track record. However, had investors waited on the five emerging market funds launched in 2019, they would have missed out.
Indeed, three of the five beat the IA Global Emerging Markets sector over their first three years, giving a 60% chance of success.
Despite this impressive debut, all the funds are among the smallest in the sector, providing an opportunity for investors to buy an undiscovered top performer.
Here, Trustnet looks at the three-year-old active funds that have beaten their peers in the IA Global Emerging Market sector.
Source: FE Analytics
The Carmignac Emerging Markets fund delivered the strongest performance, up 24.6% in its first full three years. Returns were 25.3 percentage points above its peer group average over the period, making the new entrant the sixth best performer out of 140 qualifying names.
The fund burst onto the market with a 63% return in 2020, outperforming all but two of its peers, but returns dropped 15.6% and 9.5% respectively the following two years.
Its manager, Xavier Hovasse, launched a second fund in 2019 – Carmignac Emerging Discovery – which delivered shallower, but still above average returns.
The other portfolio was up 4.4% over the past three years (to last year end), beating its peer group by 5.1 percentage points.
Total return of funds vs sector over the past three years (to last year end)
Source: FE Analytics
This variation in returns may have come from the Carmignac Emerging Markets fund’s preference for large-caps (which account for 79.7% of the portfolio’s assets), while the Carmignac Emerging Discovery fund favours mid- and small-caps (99% of holdings).
They also have some crucial differences in regional exposures. Carmignac Emerging Markets invests predominantly in China (40.6% compared to 8.8%), with Carmignac Emerging Discovery investing largely in India (25.6% versus 6.9%).
Hovasse was joined by Haiyan Li on the Carmignac Emerging Markets fund in 2021, with Amol Gogate becoming co-manager of Carmignac Emerging Discovery that same year.
The only other fund to deliver top-quartile performance in its first full three years was T. Rowe Price Emerging Markets Discovery Equity, which climbed 6.1% over the period.
Total return of fund vs sector over the past three years (to last year end)
Source: FE Analytics
It had a tough first year, delivering one of the lowest returns in the sector in 2020 at 4.6%, but it flew to the top quartile over the following two years.
The £41.5m portfolio, managed by Ernest Yeung since launch, has 32.3% invested in China, buts its allocation to the region is 1.2 percentage points below the MSCI Emerging Markets benchmark’s exposure.
On the flip side of the scale, the Invesco Developing Markets Equity was launched in 2019 but delivered a bottom quartile return within its first full three years.
Although it is the biggest fund on the list at £111.2m, returns dropped 9.4% over the past three years (to last year end), making it the 13th worst performer in the sector over the period.
It beat the sector in its first full year, climbing 14.3% in 2020, but the annual returns in the following years were below average.
Total return of fund vs sector over the past three years (to last year end)
Source: FE Analytics
The fund run by Justin Leverenz is diversified across 66 holdings, with the top 47.9% invested in Chinese and Indian equities.
Returns of the MI Somerset Emerging Markets Discovery fund also sunk to the bottom quartile in its first full three years, down 6.9% over the period.
Mark Asquith and Christopher White’s £11.3m portfolio reached the top quartile in 2021, up 7.9% throughout the year, but slipped back below the IA Global Emerging Market sector average.