Fund Focus: the global names going big on emerging markets

Having come with promises of superior growth, shares in Asia and the emerging markets have done plenty to disappoint us over the last decade. Returns have been patchy to put it politely, while leading markets like China and India have sometimes moved violently in and out of favour.

Perhaps I should eat these words based on recent returns. China rallied fiercely last year, while Taiwan and South Korea have produced some blistering performance on the back of the artificial intelligence (AI) trade. 

The MSCI Emerging Markets index is up by around a fifth this year, and if this streak continues the region could be worth another look. But with not a single dedicated emerging markets fund cropping up in our latest ii Top 50 Fund Index, investors seem more likely to take on such exposure via global funds.

Not long ago the likes of Asia and emerging market shares would be a rare sight in the big global equity funds – especially after a regulatory crackdown sent Chinese shares crashing back in 2021. But a handful of funds do still have a decent level of exposure.

The managers betting big

Sean Peche, the outspoken manager of the Ranmore Global Equity fund, may have partly used an interview with me last year to talk about buying Greggs (LSE:GRG) shares, but the fund has also drawn plenty of attention for looking past the US. 

It still has a 36% allocation to Asia in its latest factsheet and did well to ride the bull market in South Korea last year.

Another popular US-light fund, Artemis Global Income I Inc (B5N9956), has continued to bet big on emerging markets, even hitting an all-time high in terms of its allocation here. 

Manager Jacob de Tusch-Lec recently told us that he prefers the higher yields on offer though, as well as the fact that emerging markets indices tend to have “more exposure to tangible assets, industrials, commodities, consumer stocks, and less tech”. 

There’s then AVI Global Trust Ord (LSE:AGT), which has bet big on Korea alone in recent times, partly because of its corporate reform narrative. That accounts for some 16% of the portfolio.

Meanwhile Scottish Mortgage Ord (LSE:SMT), in its pursuit for growth, continues to bet on Asia, with a decent position in Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) but plenty of focus on China, too. 

Top holdings recently included TSMC on a 5.7% weighting but there’s also Tik Tok owner ByteDance and Chinese e-commerce name PDD Holdings Inc ADR (NASDAQ:PDD). 

The investment managers have previously spoken about the geopolitical risk in countries such as China, and argue that companies here need to be especially promising to make it into the portfolio.

We meanwhile have an old favourite, Murray International Ord (LSE:MYI), that has long made a virtue of looking past the US and has good allocations both to the emerging markets and Europe.

Investors should also remember that a popular passive fund, Vanguard LifeStrategy 100% Equity A Acc (B41XG30), does have around a tenth of its portfolio in the region. That’s quite a bit more than a fund tracking either the FTSE All World or the MSCI All World index.

Believers and non-believers

The funds mentioned above have participated in the emerging market and Asia rally, and there’s always a chance that other professional investors could have their heads turned by recent performance. But some of the big global funds remain focused on developed markets for now.

There’s Fundsmith Equity I Acc (B41YBW7), which is still largely a US-focused vehicle and has no direct emerging market exposure. 

Readers might remember that the Fundsmith team did once target emerging markets via a dedicated investment trust, but ultimately called time on this venture after not enjoying a great deal of success. 

Some other well-known names steer clear, from Lindsell Train Global Equity A GBP Inc (B644PG0) to Rathbone Global Opportunities Fund I Acc (B7FQLN1), which likes to target growth but also tries to limit the level of risk it takes.

It’s also worth remembering that the “standard” global tracker fund, for example one following the MSCI World index, will have nothing in the emerging markets. 

Customers at ii do seem aware of this fact, given that the most popular tracker funds at the moment are either LifeStrategy vehicles or “all world” trackers that have some limited emerging market exposure.

However with emerging markets charging ahead and US shares delivering less of a sparkling performance, those backing the latter might start to look more contrarian. And funds going big on the US, and developed markets, may well be tempted to wait for another shift in fortunes.