China helps emerging markets funds

China has emerged as a key differentiator for those emerging market funds that have outperformed their benchmark over one and three-year periods, according to new analysis issued by ratings house Standard & Poor’s (S&P).

The S&P analysis of the emerging markets funds sector said emerging markets managers had delivered strong absolute returns for the year to 31 March, although relative performance had been more challenging.

It said only three rated managers in the Global Emerging Markets peer group and three in the Asia ex Japan peer group were able to outperform their benchmarks in the year to March.

However, it noted that over longer periods the median manager in each of the two peer groups underperformed their benchmarks, although the three managers in the China peer group all outperformed their benchmark over one and three-year periods.

Commenting on the sector analysis, S&P analyst Simone Arblaster said the managers in the sector that did well in the first half of 2009 were those that capitalised on the significant discounts that stocks were grading at.

“Generally, the smaller cap, highly leveraged stocks rebounded the most dramatically from the significant lows of 2008,” she said.

“This typically benefited the value-biased managers, and in most cases brought them out of a challenging performance period,” Arblaster said. “In contrast, managers looking for quality companies found the market in 2009 much more challenging.”

The Schroder Global Emerging Markets Fund is the only product to have earned S&P’s top five-star rating.