EM equity fund launches hit record low

Just eight emerging market equity funds have been launched in the UK this year, down from 24 in 2014 and compared with 17 closures so far in 2015, data from Lipper shows.

This is the first time since the firm’s records began in 2006 in which the number of emerging market equity fund closures has exceeded launches – in either the UK or across the continent.

Emerging markets’ struggles have dampened enthusiasm for the asset class this year.

Separate Lipper data, published by the Financial Times last month, revealed Europe-wide emerging market closures would also exceed launches in 2015, but only when both bond and equity funds were taken into account.

Equity fund launches remain popular across Europe, with fund groups launching 73 products compared with 42 closures this year.

The slump in UK launches comes in spite of a number of high-profile UK fund groups having moved into the space this year.

Artemis, Man GLG, Liontrust, Jupiter, Henderson and RWC have all either launched products or overhauled their emerging market teams in recent months, anticipating a future pick-up in demand.

But for now, the sector remains deeply out of favour, as evidenced by the travails of the UK’s leading listed emerging market fund houses, Aberdeen and Ashmore.

With the MSCI Emerging Markets index shedding 15 per cent in the third quarter alone, Ashmore said last week that it had seen assets under management drop by 13 per cent during the period.

Aberdeen, which like Ashmore has shed billions of pounds of assets in recent months, is due to report final results for the year to September 30 next month.

The struggles have also been reflected in the fact the Investment Association Global Emerging Markets sector has recorded outflows in six of the last nine months, according to the trade body.

Broker Numis said this year’s pain had been widespread.

Just five of the 25 largest emerging market equity markets have posted a positive return so far in 2015, with the MSCI Emerging Markets index down 8.1 per cent for the period.

As underperformance continues, expectations are growing that the asset class is due a change in fortunes, though few are prepared to make a definitive call.

“Emerging market valuations also look appealing relative to developed markets, trading at a 32 per cent discount on a price-to-earnings basis, versus an average of 21 per cent in the past 10 years,” Numis said.

“We believe there is potential for emerging markets to rerate in time, with an [interest] rate rise in the US being a potential trigger.”

China, whose stockmarket woes have been a major factor in emerging markets’ struggles this year, is also beginning to be viewed with more calm by investors.

Bank of America Merrill Lynch’s latest monthly Fund Manager Survey, published last week, showed the majority of managers expected the country to still be growing at more than 5 per cent a year by 2018, a sharp uptick on the number who predicted such rates in September.