Investments  

EMs provide a painful lesson in poor performance

John Kenchington

Just a couple of months ago, the industry performance statistics were in the very rare position of being almost unanimously in the black – most funds had gained money over 12 months.

Only a handful of government bond funds and a few duds were reporting negative returns as almost all fund managers had in some way taken advantage of the bull market that first began in March 2009.

But today the statistics look rather different, thanks to the painful correction that has taken place in emerging markets.

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The average performance of funds in the IMA Global Emerging Markets sector in the past year was a loss of 13 per cent, according to data from FE. It’s now the bottom sector of the lot. The losses have been so severe that the funds’ three-year average performance has been dragged into the red, at a 9.1 per cent loss.

Of the four main emerging markets of Brazil, Russia, India and China, the dog of the list is Brazil by a long margin. The MSCI Brazil index has shed 28.2 per cent in the past year while the other three lost between 9.4 and 14.4 per cent – all in sterling terms.

But the IMA’s Emerging Market Bond and Asia Pacific excluding Japan sectors are also now in the red for 12-month returns, as is the China/Greater China sector, which lost 2.2 per cent in the past year.

Within the Global Emerging Markets sector, the entire selection of 70 funds with a one-year track record have all lost money over the period.

The hero of the sector is the £480m Fidelity Emerging Markets fund run by Nick Price, which has lost just 1.4 per cent in 12 months. In July 2012, Mr Price told Investment Adviser he had no weighting at all in Brazil’s giants Vale and Petrobras – that has clearly served him well.

At the bottom end of the sector, the woes have unfortunately continued for Bryan Collings, fund manager at the former Ignis partnership Hexam Capital. In September last year his Hexam Global Emerging Markets fund was showing the early signs of a comeback as a decision to be underweight India looked to be working out. But the team also had a big Brazil overweight and an extremely cyclical stance.

In its December 2013 commentary, it wrote that the short-term underperformance of emerging markets had come as a surprise and was due to “short-term speculative flows”. It said it was “perfectly positioned” for the environment and that June 2013 would prove to be the bottom of the market for emerging bourses.

Sadly wrong on all counts.

The fund lost 20.1 per cent in the past year and 40.2 per cent in the past three years, according to FE, and gained just 7.3 per cent in the past five years.

Now with just £10.7m under management in the fund, Mr Collings is facing a long hard slog from here.