Hermes Global Emerging Markets
1-year return: 17.2% | 3-year return: 53.4%
Hermes Global Emerging Markets takes the top spot among global emerging markets funds in our awards this year, having been highly commended in this category in 2016. It has also been a Rated Fund for the past three years. Managed by Gary Greenberg since 2011, with Kunjal Gala becoming his deputy manager in 2016, the £3 billion fund aims to back the winners of structural change in emerging economies. The managers run a portfolio of around 50 high-quality companies from across the size spectrum, with strong capital discipline and highly competent managements that they believe will weather market storms and reward investors over the long term. It has not disappointed, with the fund delivering excellent risk-adjusted returns compared to its peer group and benchmark indices. It has outstripped the IA global emerging markets sector by 17 per cent over the past three years. The first step in the managers’ investment process is to look at macroeconomic factors to identify attractive countries and sectors. Having pinpointed those where they believe conditions are supportive for growth, they look for potential investments with a focus on quality companies trading at attractive valuations. Due to the volatility of emerging markets, they favour this approach for the margin of safety.
HIGHLY COMMENDED FUND
Lazard Developing Markets
1-year return: 11.3% | 3-year return: 54.4%
Lazard Developing Markets has slipped to second quartile over the past year, but its returns over the previous two have been among the best in its sector. It has outperformed by 18.1 per cent over three years, with low volatility. Portfolio managers Kevin O’Hare and Peter Gillespie lead a wider team of dedicated research analysts. The team seeks to generate strong relative returns over a full market cycle by investing in companies with sustainable earnings growth at attractive valuations. They typically invest in the securities of companies domiciled in countries included in the MSCI Emerging Markets index, with more than $300 million in market capitalisation and with sufficient liquidity. The £36 million fund has overweight positions in information technology and financials, with recent performance being driven by Chinese internet-related stocks and banks such as Russia’s largest banking group Sberbank, which has enjoyed strong earnings growth. After five years of flat-to-declining earnings, the managers expect emerging markets earnings to rally further, providing support for share prices.