Top Rated Emerging Market Funds

ASK THE EXPERT: Looking to add emerging markets exposure to your portfolio? We highlight three of the highest rated funds on the market for your consideration

Emma Wall 14 November, 2014 | 12:42AM
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Emma Wall: Hello and welcome to the Morningstar series, "Ask the Expert." I'm Emma Wall and here with me today is Simon Dorricott, Morningstar Analyst.

Hello, Simon.

Simon Dorricott: Hi.

Wall: So, we're looking at emerging markets this week and we've come to the end of the week and we're looking at how we can take all the information we've got so far and actually turn into real investments. There are several emerging market funds that we rate quite highly here at Morningstar. Starting with the Gold Ratings, there is a bit of a trouble here because the best funds in this sector are actually soft closed, aren't they?

Dorricott: Absolutely, they are. Well, the main gold-rated funds that we cover are from the U.K. offered by First State and both of those GEM and GEM Leaders are currently soft closed. I mean, it makes some sense. It protects existing investors. But obviously, if you're looking for a new investment, trying to get into emerging markets, it's not ideal.

Wall: But fear not, because although there are the only ones that hold a Gold Rating, we do highly rate and highly regard some others in this sector, don't we? Do you have something that’s got a Silver from us?

Dorricott: Absolutely. I mean, one of our Silver-Rated funds is offered by Lazard's and it's managed by an experienced manager called James Donald who heads up the team – or a small team there. He has got support from I think seven individuals that work on his team directly, but at Lazard there are six other teams that also cover emerging market strategies and they very much encourage integration across teams within that group. So, we feel that that fund is very well-resourced as a result of that. The investment approach is well-structured. We're very comfortable with that. They operate a slightly different approach to some others in terms of looking very much at the medium-term and looking to get very good entry points in terms of valuation.

Wall: And that sort of dynamic approach is perhaps one that may be needed in times like this because emerging markets having a fantastic run from sort of 2003 to 2012, the last couple of years have been pretty sticky place, so perhaps the manager that takes that very active approach is what we're looking for now?

Dorricott: Absolutely. James has produced a fantastic track record across many different types of markets. So, his consistency of performance has really been there.

Wall: You touched when you were talking about that on the sort of 5 Ps process that you use to rate these funds. You've said that integration with the team and the support that comes from Lazard is important because that's people, process and parent, isn't it?

Dorricott: Absolutely right, yes. It's always the way we look to assess individual funds and rate them.

Wall: And what about a third fund for us today?

Dorricott: Well, a slightly different approach that is come to the fore over recent years has been one which looks a little bit more at income as well as reducing capital gains. And that's a very valid approach we think for investors in emerging markets as it focuses on good corporate governance and also can reduce the volatility of returns that you see from that sector.

So, one of the Rated funds that we particularly like in this area is offered by JP Morgan. It's managed by their CIO of emerging markets Richard Titherington. And the investment approach here is – well, in terms of stock selection is one that really lends itself to being able to be adapted for us within this sort of income space. So, that's one of the reasons why we particularly like this product. It's only been launched – well, it was launched in 2012, so it's not been running for that long. The strategy itself I think was launched in 2010. So, it's got a little bit of a longer track record and that track record has been pretty strong, both against mainstream peers and against other income-oriented firms.

Wall: Simon, thank you very much.

Dorricott: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar