Top-Rated Emerging Market Funds

We asked Morningstar fund analysts to pick their favourites among rated emerging market and China funds

18 July, 2022 | 10:26AM
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Shanghai, China

Emerging Markets

JPM Emerging Markets - Silver

The Silver-rated JPM Emerging Markets benefits from highly experienced management team, extensive resources, and notable investment process.

Leon Eidelman has managed the strategy since July 2016. He is supported by well-regarded Austin Forey, who is head of the Fundamental Emerging Markets team at JPM. Management is well-supported by the 92-member emerging-markets and Asia-Pacific equities team.

The process follows the same quality/growth bias. The vast majority of assets are allocated to premium and quality names, which operate in attractive industries with limited external risks and possess strong balance sheets and solid cash-flow generation. The strategy has historically been underweight in energy and materials firms relative to the index.

Given the focus on quality growth here, we would expect the strategy to perform well in markets driven by earnings and fundamentals such as 2020. On the flip side, the strategy is likely to struggle in value type environment such as 2021, when a number of growth technology and internet-related companies sold off following strong performance in recent years, while commodity areas outperformed.

It's worth noting that the strategy’s total assets under management as of June 2022 was around $38 billion. The Luxembourg-domiciled vehicle and US mutual fund remain soft-closed, while the UK-domiciled vehicle remains open given regulatory restrictions, although it is not marketed to new clients.

Stewart Investors Global Emerging Markets Sustainability - Silver

Another Silver-rated emerging markets option is Stewart Investors Global Emerging Markets Sustainability, which benefits from a well-regarded investment team, whose sustainably focused approach is best in class.

Managed by Stewart’s Sustainable Funds Group, the strategy’s team is impressive. Jack Nelson leads the portfolio and is backed by a strong supporting cast, including highly experienced David Gait, who heads the team and has been key in building and sustaining the group’s culture.

The two are backed by 12 additional analysts and portfolio managers sat across four global offices. The team is stable, and its members have diverse backgrounds and display impressive insights, particularly regarding sustainability.

The strategy's benchmark-agnostic approach is well-codified and robust. Nelson seeks 30-75 stocks capable of delivering sustainable and predictable growth through pricing power, franchise strength, and management integrity. The group tries to invest alongside founders in family-owned businesses where possible.

The team homes in on firms whose revenues are less likely to be impacted during economic downturns, which has led to a preference for consumer staples. Conversely, given its mandate, which focuses on companies that contribute to and benefit from sustainable development, investors should expect the portfolio's energy and materials stakes to be limited.

The strategy's returns since inception have been strong. Downside protection is typically a Sustainable Funds Group hallmark, and indeed, this portfolio held up well in the early 2020 coronavirus-related sell-off. Additionally, it has been the least volatile option in the global emerging-markets equity Morningstar Category during Nelson's tenure. Owing to its approach, investors can expect those characteristics to persist.

GQG Partners Emerging Markets Equity - Silver

Another top choice within emerging markets is GQG Partners Emerging Markets Equity, which is also rated Silver by Morningstar.

The strategy benefits from the expertise, experience, creativity, and proven record of Rajiv Jain. Before taking over here in late 2016, Jain had a long and successful run as a manager at Vontobel Asset Management, where he successfully managed Virtus Vontobel Emerging Markets Opportunities for 10 years.

Jain is supported by an experienced 17-member analyst team. All analysts are generalists, though some apply expertise in fields acquired in their previous jobs.

Rajiv Jain uses "quality growth" approach, looking for growing companies but only if they are on solid financial footing and have demonstrated the ability to weather slow economic conditions. As such, the focus is on companies with high returns on equity and assets and low to moderate leverage. Sectors or countries can be heavily over- or underweight. Although Jain usually holds stocks for many years, he will change direction decisively if he feels it is appropriate.

This strategy’s total AUM has grown to nearly $25 billion in assets as of March 2022. It bears watching, but Jain’s Vontobel emerging-markets fund was even larger, and so far, there appear to be no problems.

China Funds

Schroder ISF China Opportunities - Gold

The Gold-rated Schroder ISF China Opportunities benefits from a capable Greater China equities expert and a time-tested investment process.

Head of Greater China Equity Investments Louisa Lo has managed the strategy since August 1, 2013. She brings 28 years of investment experience, 25 of which with Schroders. She is supported by the Greater China research team, which has 17 members.

Lo employs a quality-growth-focused investment process that has been consistently applied and proven over multiple market cycles across a range of Schroders’ Asian equity products. It benefits from a robust and clearly defined framework, where analysts assess a company’s growth prospects by comparing its return on invested capital and weighted average cost of capital.

Overall, our strong conviction in Lo and her execution of proven investment process makes this strategy one of our top Chinese equity picks.

FSSA China Growth - Gold

Another top choice within the China space is FSSA China Growth. It boasts a top-notch portfolio manager, the team’s outstanding investment culture, and a time-tested investment process.

Portfolio manager Martin Lau has 26 years of investment experience and has led this strategy since April 1, 2002. He is an expert investor, consistently showcasing in-depth investment knowledge and his passion for investing.

Lau leads 23 investment professionals who average 12 years of investment experience. The investment team sports a strong investment culture, one that aligns its interest with investors and is mindful of succession planning.

Lau applies a tried-and-tested bottom-up stock selection process which has delivered impressive track records across his Asian and Greater China equity mandates over the long haul. The investment approach aims to identify quality growth companies at reasonable valuations, with particular attention paid to management quality. Other trademarks of the investment process include its absolute return focus, low portfolio turnover, and a benchmark-agnostic approach.

The FSSA team’s Chinese equity franchise has grown to $10.6 billion as of September 2021 and has been soft-closed – that is, no longer actively marketed. This was mainly driven by some capacity constraints that the team saw in the A-share space. Reassuringly, the fund’s liquidity profile has remained stable over the past year, and the team has a track record of hard-closing funds in the past.



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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