Emerging market funds require a steady hand
Morningstar's review of the Asian equities and emerging markets funds space in 2012 has seen one downgrade and two upgrades, with Colonial First State achieving the highest accolade.
The Colonial First State Global Emerging Markets Select fund was the only fund of the 18 reviewed to retain its ‘gold' rating.
"Portfolio Manager Jonathan Asante and his impressive team adopt a more conservative viewpoint that doesn't get enticed by the various fads and hot sectors often associated with emerging markets investing," said the Morningstar report.
"The team pays little heed to the benchmark, resulting in a portfolio that can appear markedly different to peers and the index," it said.
The only other previous gold-rated fund, Platinum Asia, was downgraded to ‘silver' due to "some tweaking done by the shop in regards to the portfolio management responsibility of the fund".
"April 2011 saw Joseph Lai take ownership for 30 per cent of the portfolio, double what it was previously. Additionally Lai is expanding his scope to hold stocks across the region, having previously focused solely on China," said the Morningstar report.
In addition, Morningstar's decision was swayed by the fact that Platinum's Andrew Clifford is spending greater time managing his share of the firm's flagship international fund.
Morningstar made two upgrades in its sector wrap: Arrowstreet Emerging Markets was upgraded from ‘bronze' to ‘silver' due to its team's high conviction and consistent performance; and AMP Capital Asian Equity Growth was upgraded from ‘negative' to ‘neutral' following changes to its investment team.
Looking at the emerging sector at a whole, Morningstar reaffirmed the somewhat counter-intuitive point that there is "little clear evidence of any sustained link between [positive] macroeconomic characteristics and sharemarket performance".
However, there is a slightly stronger relationship between GDP growth expectations and sharemarket performance, said Morningstar.
The ‘Morningstar Medallists' (the funds that receive gold, silver or bronze ratings) tend to eschew ‘hot' sectors and instead focus on sustainability and corporate governance.
The Morningstar report also recommended that Australian investors and advisers gain some exposure to emerging market debt, considering that many emerging market nations are migrating to investment-grade status.
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