Emerging market funds were at both the top and bottom of performance tables last month.
It’s been a torrid few months for emerging markets. An escalating trade war, a strong dollar and fears of contagions spreading from Turkey and Argentina has knocked the region. Investment funds, however, have seen a wide divergence in performance, showing a split within the diverse asset class.
Eastern Europe and Latin America (Argentina’s persistent problems notwithstanding) performed well in September, with funds in both countries topping the tables for performance across all sectors.
This was primarily on the back of oil and commodity price rises, of which both regions are big exporters.
|Funds - September 2018 (top ten)||Return %|
|Invesco Perpetual Emerging European||+6.2|
|Natixis H2O Multi returns||+6.1|
|Invesco Perpetual Latin America||+6.0|
|Jupiter Emerging European Opps||+5.9|
|Scottish Widows Latin America||+5.8|
|Aberdeen Latin America||+5.8|
|Threadneedle Latin America||+5.4|
|JPM Emerging Europe Equity||+5.1|
|Artemis Global Energy||+4.4|
Neptune Russia, which has 30 per cent of its portfolio in energies, saw the strongest returns. Second was Invesco Perpetual Emerging European, which has around 35 per cent invested in energy. Its largest holding is Russia’s Lukoil.
After an unexpectedly poor year, the commodity price bounce also helped several Latin America funds boost their performance.
Underlining the point that this performance was driven by oil prices rises, also among the top 10 were also numerous energy-focused funds such as Artemis Global Energy.
In contrast, emerging market behemoths India and China saw more lacklustre returns.
|F&C European Growth & Income||-5.1|
|SJP Emerging Markets||-5.4|
|Newton Global Emerging Markets||-5.6|
|MFM Junior Oils||-5.7|
|F&C Pacific Growth||-6.5|
|Stewart Investors Indian Subcontinent||-7.5|
|First State Indian Subcontinent All Cap||-10.4|
India-focused funds, however, were the worst performers, with Jupiter India losing investors 14.3 per cent and Neptune India losing 12 per cent.China’s performance has been held back by continued escalation of the trade war with the US, as well as a reining-in of credit by the Chinese government. Among the worst-performing funds were F&C Pacific Growth and Newton Global Emerging Markets, both of which hold many Hong Kong-listed Chinese companies.
This has been driven by a weakening rupee over the past two months, as well as by the rise in oil prices. India is a large oil importer and with oil priced in dollars, the weakening of its currency has led to a widening of its currency account.
According to Ben Yearsley, director of Shore Financial Planning, the consensus among most commentators is that emerging markets, including poor-performing India and China, are now cheap compared to developed markets.
However there appears to be little appetite for emerging markets: ‘Investors are yet to buy into this weakness in any meaningful way, with the new emerging-market focused Mobius Investment Trust only raising half the capital it sought,’ he notes.
Despite emerging markets offering potential bargains, ‘It is very difficult tempting investors into a falling asset class.’