Emerging market (EM) equity funds experienced the largest flows since 2018 and the sixth largest flows ever at US$7 billion ($9 billion) thanks to buoyant commodity price, a weak US dollar, and hopes for global reflation in the second half of 2021, according to data.
Data from EPFR also found flows into emerging market funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates were the second largest on record, and retail investors continued to buy into emerging markets with inflows for the 14th week in a row.
According to Bank of America (BofA) data, the largest weekly percentage of assets under management flows in EMs went into Brazil (0.7%) and Russia (0.2%). China was down 0.1%.
“China equity funds recorded their 30th consecutive retail inflow despite last week’s institutional exodus. Institutional investors were net redeemers for the second straight week as they looked to sidestep any fallout from official efforts to keep the COVID-19 pandemic contained going into the Chinese New Year, usually a period when millions of people travel within the country,” EPFR said.
EPFR found that Israel’s aggressive vaccination rollout program and its reputation in the cybersecurity space attracted investors looking at Europe, the Middle East and Africa (EMEA) markets and flows into Israel equity funds were the largest since Q2 of 2008.
“Meanwhile Poland equity funds recorded their biggest outflow in over 30 months as the country remains in lockdown and officials wrestle with anti-vaccination sentiment.
“Among the major Latin America country fund groups both Brazil and Mexico equity funds posted inflows as oil prices climbed to a 10-month high and the price for iron ore, a key export for Brazil, climbed to levels last seen in 2011. However, recent data showing Brazilian inflation at a four-year high has hit hopes of further monetary easing in Latin America’s largest economy.”
Top-performing emerging market funds since the start of 2020 to 30 November 2020
Source: FE Analytics
According to FE Analytics, within the Australian Core Strategies universe, during the first 11 months of 2020, the top-performing emerging market fund was Northcape Capital Global Emerging Markets at 29.83%.
This was followed by GQG Partners Emerging Market Equity (19.8%), Perennial Value Emerging Companies Trust (19.59%), CC RWC Global Emerging Markets A (15.34%), and Paradice Global Emerging Markets (14.23%). The sector average was 2.8%.
According to Northcape’s latest factsheet in June 2020, the fund’s largest country allocation was to Malaysia (17.1%), followed by India (14.7%), South Korea (14.5%), Taiwan (12.1%), and China/HK (10.2%).
Its largest sector allocation was towards information technology (24.7%), followed by healthcare (15.6%), industrials (15.5%), consumer staples (11.4%), and financials (8.5%).
Over the longer term it was Legg Mason Martin Currie Emerging Markets that took the top performing spot at 97.15%, compared to the sector average of 55.37%.
The fund was followed by Fidelity Global Emerging Markets (93.75%), Northcape Capital Global Emerging Markets (87.74%), Schroder Global Emerging Markets Wholesale (72.96%) and CFS FirstChoice Wholesale Emerging Markets (70.19%).
Top-performing emerging market funds over the five years to 30 November 2020
Source: FE Analytics
The Legg Mason fund had its largest country allocation towards China at 31.26%, followed by South Korea at 19.82%, Taiwan at 13.15%, India at 11.53%, and Brazil at 3.66%.
Its top sector allocations went to information technology at 30.3%, consumer discretionary at 19.9%, financials at 18.3%. communication services at 10.36%, and materials at 9.08%.
“At a market level, IT was the strongest sector during the month, while real estate was the biggest laggard. In terms of regions, of the larger markets Turkey and Korea were the most notable positives, while China was among the weakest,” Legg Mason said.