Waiting Room: Who are the rising stars of emerging markets?

John Husselbee Liontrust Husslebee

For many investors, a minimum three-year track record remains a prerequisite for considering a
fund, immediately ruling out new launches.

While there is an argument for allowing managers to build up a record, the magic three-year rule should be qualified based on who is buying a fund. As a professional multi-manager, it is my job to understand managers and their styles and that should allow me to make a judgement call on new funds. The opportunity cost of missing three years of performance is potentially considerable, particularly given the calibre of managers launching funds in recent years.

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Artemis Global Emerging Markets fund

Logic may dictate that when launching an active global emerging markets equity fund, an investment manager would need to commit to digging into their pockets to invest in infrastructure. However, this is not the case with Artemis, which launched the Artemis Global Emerging Markets fund in April 2015, building upon its existing SmartGARP investment process offerings. The fund is essentially a spin-off from the £580m Artemis Global Growth Fund, managed by Peter Saacke. Many fund buyers will know the Smart GARP process, which is a screening process to find undervalued opportunities that have growth prospects.

The new fund will typically invest in 80-120 holdings, and current assets under management total £45.8m. While returns since launch show only a marginal outperformance of the MSCI Emerging Markets benchmark, it would be foolish to write off this fund. As I have said many times, active management is a marathon and not a sprint.

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Investec Emerging Markets Dynamic Equity fund

The Investec Emerging Markets Dynamic Equity fund celebrated its first anniversary this July with nearly £8m assets under management. Run by Adam Child on the 4Factor Equities team, the fund looks for stock ideas by reviewing strategy, valuation, earnings and the technicals of companies through proprietary analysis. As the fund’s name suggests, this is a dynamic strategy with a firm focus on stock picking, and a concentrated portfolio of 50 stocks. It sits alongside the £142m Investec Emerging Markets Equity Fund, which was launched in late 2012 and is managed by investment colleague, Archie Hart.

Half of the new portfolio is invested in South Korea, China and Taiwan, with good weightings to financials and technology sectors. But while emerging markets have risen nearly 20 per cent over the past 12 months in sterling terms, this fund has struggled in its first year to achieve anywhere near this return. One to watch.

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7IM Emerging Markets Equity Value fund

It may seem surprising that investors would be interested in passive-style investments in such a diverse and ostensibly opaque sector as emerging markets, but last year 7IM launched four smart beta funds. They invest in the UK, US, Europe, and last but not least, the developing world, via the 7IM Emerging Markets Equity Value fund.

7IM prefers to refer to the approach as “smart passive” – a process designed to improve on traditional market cap weighted indices by using factor investing; searching for stocks on inexpensive valuations with reasonable trading prospects.

The fund, which has £65m in assets under management, is currently weighted towards China, Korea and Turkey, favouring financials, technology and consumer staples. The managers aim to outperform the index on an annual basis by 1-2 per cent, and this has been achieved in the year since inception.

John Husselbee is head of multi asset at Liontrust