Topic:

Inflows
and Outflows

A look at Global Emerging Markets

Topic:

Inflows
and Outflows

A look at Global Emerging Markets

Introduction

A look at Global Emerging Markets (GEM): To make well informed choices, GEM investors should look at which regions have delivered the best returns in recent times. This paper explores the relationship between inflows, returns and investor sentiment and looks at how Eastspring GEM Equity Strategy makes stock choices that are often radically different from those of its peers. The paper is one of three based on research* conducted with our partner Last Word Media.

Distribution Description

01

Investment into GEM equity funds

According to Morningstar data, European and UK equity funds saw net outflows of €198bn over the last five years, and GEM equity funds saw net inflows of €39.3bn. The remaining region-specific GEM funds show net outflows of varying degrees. This shows a clear move away from region-specific investing and towards generic GEM funds.

Source: Morningstar as at February 2017 and Last Word Media Research as at February 2017 Scroll
down

Distribution Infographic

Jan '12 - Jan '17

198bn

net outflows from European and UK-domiciled equity funds

39.3bn

net inflows for GEM equity funds
net outflows for remaining region-specific equity funds see table below

Distribution Graph

5-Year Net Inflows: Jan '12 - Jan '17

Source: Last Word Media Research, Eastspring Investments as at February 2017
5-Year Net Inflows
Jan '12 - Jan '17
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Returns Description

02

Annualised returns by GEM region (Jan '12 - Jan '17)

Despite the investment pattern shown in the first chart, daily annualised returns over five years for GEM equity funds were just 5.38%, compared with the largest returns over five years from India-focused funds at 11.01% and China-focused funds at 9.93%. This helps show that investor sentiment is not always right.

The chart also shows that one-year (daily) returns for Latin America and Russia-focused funds were greatest at 42.28% and 44.83% respectively while five-year returns for funds focused on these regions were the lowest of those featured (at -2.31% and -0.59% respectively). They demonstrate the biggest shift in the past five years.

Returns Graph

Source: Last Word Media Research, Eastspring Investments as at February 2017
1,2,3, and 5-Year
Annualised returns by GEM region
View bar chart chevron

Strategy Description

03

Eastspring GEM Strategy invests differently to its peers

There is clear disparity between sentiment and actual returns as demonstrated by the difference in investment and returns shown in the charts above. At Eastspring, we recognise that it is extremely hard to be more informed than the market but that there is considerable behavioural bias in many investor decisions. We therefore hold value positions with high conviction that are often contrary to those of our peers. As such we have designed a very disciplined value approach that focuses on the price of each specific stock relative to our estimate of its sustainable earnings. As such we often have high-conviction positions in stocks unloved by our peer group. This results in a negatively correlated active return.

Strategy Graph

Average Correlation of Active Returns vs Peers

(145 GEM equity funds with returns spanning Dec-2010 to Dec-2016)

Source: Mercer MPA, Eastspring Investments, as at 31 December 2016. Correlation of active returns calculated on all Mercer MPA Global Emerging Market universe for all 145 GEM equity funds with track records spanning December 2010 (Eastspring GEM Composite Inception) to December 2016. Past performance is not necessarily indicative of the future or likely performance.
Average Correlation of Active Returns vs Peers
(145 GEM equity funds with returns spanning Dec-2010 to Dec-2016)
View bar chart chevron

Quality Vs Value Description

04

Peers buy relatively expensive stocks

Our investment decisions are driven by our conviction regarding the value of the stocks we research. This means our top 10 holdings look cheap relative to the market, while our peers pay considerably more for the stocks they own.

Quality Vs Value Graphs

GEM Peers Top 10 Active Positions Look Expensive

Eastspring GEM Strategy Top 10 Active Positions Look Cheap

GEM Peers Top 10 Active
Positions Look Expensive
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Eastspring GEM Strategy Top 10 Active
Positions Look cheap
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Quality Vs Value Source

Source: Eastspring Investments, 31 March 2017, Top 10 peer names sourced from BofA Merrill Lynch Global Quantitative Strategy, MSCI FTSE, Factset, Bloomberg, 13F Filings, Benchmark Indices, Country Stock Exchanges. Please note that the securities mentioned are included for illustration purposes only. It should not be considered a recommendation to purchase or sell such securities.
There is no assurance that any security discussed herein will remain in the Eastspring GEM strategy at the time you receive this document or that security sold has not been repurchased. The securities discussed do not represent the entire Eastspring GEM strategy and in the aggregate may represent only a small percentage of the Eastspring GEM strategy holdings. PB = Price-to-book. Past performance is not necessarily indicative of the future or likely performance.

Tips Description & Video

Tips for selecting a fund manager?

1min 32 sec

The disparity between investment and returns as demonstrated above helps show the importance of ensuring your investment manager has a competitive advantage. Ernst Knacke from Quilter Cheviot, Ben Gutteridge from Brewin Dolphin and Tony Lawrence from 7IM discussed the issue at our recent roundtable.

 

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*The research conducted with our partner, Last Word Media, surveyed 81 fund buyers in February 2017. Some 25 were from Singapore, 13 were from Hong Kong, 11 from the UK, 32 from Europe excluding the UK.

This article is issued in:

  • Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H).
  • Hong Kong by Eastspring Investments (Hong Kong) Limited
  • Luxembourg by Eastspring Investments (Luxembourg) S.A., Grand-Duchy of Luxembourg
  • United Kingdom by Eastspring Investments (Luxembourg) S.A. UK Branch, 125 Old Broad Street, London EC2N 1AR

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