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April 6, 2015

Monday Morning Memo: European Fund Buyers and Emerging Market Equity Exposure

by Jake Moeller.

Lipper’s Jake Moeller investigates how European fund-of-funds managers are gaining Emerging Market equities exposure in January 2015.

Reuters/ Edgar Su

Reuters/ Edgar Su

Emerging Market (EM) equities are far from a homogeneous grouping covering Eastern Europe, Asia, South America, Russia and China to name but a few and given the regional performance variations, it would take a very brave asset allocator to make substantial calls on any particular region.

In Euro terms the 1-year performance to 31 January 2015 has varied considerably with EM Asia returning 37.9% for the year and EM Europe -6.4%. Indeed, within the top 25 most popular EM funds with European buyers, the best performer over the 12 months to 31 January 2015, Vontobel Fund Emerging Markets Eq I USD (26 buyers) returned 39.7% and the worst fund F&C Eastern European USD Inc (18 buyers) returning -11.8% over the same period.

Table 1. Performance of various Emerging Market Indices One-Year to January 31, 2015 (in Euro)

Source: Lipper for Investment Management

Source: Lipper for Investment Management

Indeed, there has been a preference in the EM classifications for larger cap broad-based exposure and passive funds are better represented than in many other sectors. The most popular EM fund is French fund Magellan C with 49 buyers and also very strong performance of 34.9% and other active funds such as Aberdeen Global – Emerging Mkts Equity I2 USD (32 buyers), Fidelity FAST Emerging Markets Y-ACC-USD (27 buyers) and JPM Emerging Markets Opportunities C Acc USD, (23 buyers).

Table 2. Most Popular Emerging Markets Equities Funds Ranked by European Fund Buyer Popularity

Source: Lipper, a Thomson Reuters company.

Source: Lipper

Passive options form only 8 of the top 25 options with iShares MSCI Emerging Markets UCITS ETF (Dist) proving the most popular with 34 buyers but all 8 options form over 34% of total assets under management for the sector in the top 25 funds.

The higher risk funds only make an appearance further down the list Aberdeen Global – Emerging Mkts Sm Cos A2 Acc USD (17 buyers)being a notable inclusion. With over 600 funds and share classes being used to gain access to Emerging Markets, the clear preference is large cap, well branded active managers. Otherwise, passive exposure appears to be the order of the day.

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