Interactive Investor

Emerging markets hammer developed markets in July

6th August 2014 15:34

Rebecca Jones from interactive investor

Funds and trusts invested in emerging markets significantly outperformed their developed market peers during July, with Asia proving a consistent bright spot.

According to data from FE Analytics, the Asia Pacific excluding Japan and global emerging markets sectors were top performers in both the open and closed-ended space last month, notching up an average return of over 4% with specialist China funds performing particularly well.

This compares to an average loss of around 1% in most mainstream developed market sectors. These include the Investment Management Association's (IMA's) UK all companies sector, which lost 0.83% in July, and the Association of Investment Companies (AIC's) global sector, which lost 0.47% during the same period.

Asia pacific

In the open-ended space the-best performing sector was IMA China/Greater China, which delivered an average return of over 6.5% between 1 and 31 July. The top-performing fund in the sector was Fidelity's FF China Focus, which returned an impressive 8.8% during the period, closely followed by HSBC's Chinese Equity with a return of 8.72%.

Similarly, in the investment trust space country specialists - Asia Pacific was the best performing sector with an average return of 5.48% last month.

JPMorgan Chinese Investment Trust, a Money Observer Rated Fund, delivered the strongest return at 8.06% while Anthony Bolton's brainchild Fidelity China Special Situations, now managed by experienced Asia investor Dale Nicholls, was the second best performer with a return of 6.6%.

According to Luca Paolini, chief strategist at Pictet Asset Management, much of this can be explained by economic improvements in China and the fiscal prudence of emerging economies, which are "giving developing markets a boost".

"There is increasing evidence that a recovery in emerging economies is taking place, fuelled by a rise in external demand. Emerging equities are attractively valued and the 25% discount to developed market stocks looks unjustified given improved longer-term prospects," says Paolini.

Top 10 performing open-ended sectors in July
RankSectorPerformance 1 to 31 July
1IMA China/Greater China6.5
2IMA Asia Pacific Excluding Japan4.18
3IMA Asia Pacific Including Japan3.3
4IMA Global Emerging Markets2.87
5IMA UK Gilts1.3
6IMA Japan1.14
7IMA Property1.13
8IMA North America1.12
9IMA Japanese Smaller Companies1.06
10IMA Global Emerging Market Bond1.04

Europe featured heavily among the worst-performing sectors. In the open-ended space IMA European smaller companies was the worst-performing sector overall notching up a loss of 4.35% while the AIC European smaller companies sector featured in the bottom five, shedding 5.59%.

This follows the release of disappointing economic data from the eurozone which, as Azad Zangana, European economist at fund manager Schroders, explains, has concerned some investors.

"Over the past few months, investors' fears about the eurozone's recovery have been re-emerging as a number of leading business surveys have been falling and the most recent industrial production data have been weaker than expected," he says.

However Zangana added that at this stage, the softer data should not be a concern as prior European indicators had been "very strong."

The UK also featured amongst the top 10 worst-performing sectors in both the open-ended and closed-ended space. However, this was more pronounced within funds than trusts with five of the ten worst-performing IMA sectors investing at home; IMA UK equity and bond income, IMA sterling high yield, IMA UK equity income, IMA UK all companies and IMA UK smaller companies.

Top 10 performing closed-ended sectors in July
RankSectorPerformance 1 to 31 July
1IT Country Specialists Asia Pacific5.43
2IT Asia Pacific Including Japan Equities4.82
3IT Global Smaller Companies4.63
4IT Asia Pacific Excluding Japan Equities4.05
5IT Country Specialists Latin America3.23
6IT Country Specialists Other2.98
7IT Global Emerging Market Equities2.4
8IT VCT Specialist Healthcare & Biotechnology1.59
9IT Latin America1.13
10IT Property Direct Asia Pacific1.1

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.