Many people say that the emerging market is an inefficient market and hence active managed approach is more suitable. Whether the emerging market is inefficient or not I do not know but we can objectively measure the performance of fund managers we have in Singapore. Here is a sample of the emerging market equity funds approved to be sold to retail investors in Singapore:
This fund was first incepted 28 Feb 1991. It has a very long period of performance. Currently it is managed by Mr. Mark Mobius. As at 31 July 2010, the fund share class A(Ydis) USD performed 6.1% per annum before sales charge verses the index’s return of 10.4% per annum since inception. Dividends are reinvested for the purpose of the performance calculation.Underperformance since inception was a disastrous -4.3% per annum.
This fund was first incepted 09 March 1994. It has a very long period of performance. As at 31 August 2010, the fund in USD performed 5.3% per annum before sales charge verses the index’s return of 5.9% per annum since inception. Underperformance since inception = -0.6% per annum. This fund appears to be benchmark hugging but according to the statistics printed on the fact sheet, the alpha is -1.86 over the last 3 years, meaning the fund manager is not adding value but underperforming.
This fund was first incepted 11 November 1994. It has a very long period of performance. As at 31 July 2010, the fund in USD performed 3.3% per annum before sales charge verses the index’s return of 6.2% per annum since inception.Underperformance since inception = -2.9% per annum.
The Aberdeen Global Emerging Markets Fund available to retail investors in Singapore feeds into the Luxembourg mother fund. The underlying mother fund was incepted since 15 August 2001. Performance of the Luxembourg domiciled fund verses benchmark as at 31 July 2010 was: 22.80% per annum and 17.04% per annum respectively. It does look like a good fund because of its huge overperformance. Its beta of 0.87 and 0.88 for 3 years and 5 years performance respectively shows it has a lower market risk.
This fund is currently managed by Mr. Nick Price and was incepted on 18 Oct 1993. It has a long history. Since launch date, the fund performed in 3.87% per annum verses benchmark return of 7.35% per annum in USD as at 31 July 2010. Theunderperformance was a disastrous -3.48% per annum.
A similar S$ share class was available since 15 May 2006. From 2006 to 2008, this share class was tracking the index very well. Therefore I recommended this fund to many of my clients especially those using their CPF-OA for investments. In introspect, it was a disaster. When the stock market crashed in 2008 until now, the fund performed -10.44% verses the index return of -5.11% per annum in SGD over the 3 years period. To experience the stock market crash was painful enough but to have the fund further performed worst by - 5.33% per annum is suicidal. Actually, many of my clients do not know the pain I felt when I see such disappointing results. Anyway, on 26 April 2010, the Fidelity Emerging Market Fund S$ was delisted from CPFIS-OA investment.
This fund was launched in 1 Jun 04. Its performance in S$ is 12.8% per annum verses benchmark return of 13.4% per annum as at July 2010 factsheet. The underperformance is -0.6% per annum. It appears to be benchmark hugging. The only problem I have with this fund is that the fund size of S$18.5m is so small.
This fund was launched in 28 July 2000. Unfortunately its factsheet does not show the performance since inception date. So I have to make do with whatever is provided. The 5 years cumulative returns of the fund in USD as at 30 July 2010 was 53.71% verses the benchmark’s 84.33% cumulative return. Interestingly, the factsheet state that the sector’s return was 68.28% over the same period. The fund underperformed by a disastrous -30.62% in cumulatively return compared with the index over 5 years period measurement.
This fund is quite new as it was launched in 28 April 2008 for the Class A Acc USD share class. The performance since launch was -9.97% per annum compared with -5.6% per annum as at 31 July 2010. In such a short span of time, it was alreadyunderperforming by a disastrous - 4.37% per annum.
This fund was launched in 13 April 1994 for its USD A (dist) share class. Its performance was 7.3% per annum since launch compared with benchmark return of 6.9% per annum. Not bad of having an outperformance of +0.4% per annum. Since launch, the beta measured was 1 and alpha 0.05 demonstrating fund manager value add. Unfortunately the statistics for 3 and 5 years return are not good as the alpha was -0.06% and -0.02% respectively. Nevertheless, it appears to be a benchmark hugging fund.
This fund was launched in 24 January 2003. Since launched, the USD return was 17.67% per annum compared with the benchmark return of 20.90% as at 31 July 2010. The underperformance was a disastrous - 3.23% per annum. The factsheet also show that the alpha over the 3 years period is -2.66% (ouch).
This was launched in 31 December 1994. It has a long history. Russell Investments would select fund managers to invest. Since inception, the performance in USD was 7.9% (net of Class A fees) per annum compared with 8.4% per annum. This it isunderperforming by -0.5% per annum. It appears to be benchmark hugging.
I have analyse 11 funds. 7 are underperforming the index. 3 are benchmark hugging (thus fund managers appear to be just investing in the index). Only 1 from Aberdeen Global Emerging Market appears to be doing well. The conclusion is that despite Emerging Market being “inefficient”, active managed funds fail to add value. As for the only 1 “winner”, will Aberdeen continue its good job? Well, they certainly alone among the rest.
For me, I prefer not to bet the skills of humans to do the job. I prefer a fund that can invest in the index. But the problem is that in Singapore it is difficult to do that. Although Exchange Traded Funds (ETFs) appear to track the index but they are of different animals these days. For instance, I have been getting nightmares these days about swap-based ETF which although could perfectly track the index but the counterparty risks continue to hunt me. For fund based ETF, things are not so simple too.
Take for example, the iShares Emerging Market ETF listed on the London Stock Exchange. In the beginning of this year I observed a huge underperformance. The one year performance (12/01/09 - 12/01/10) for the ETF was 85.12% but the index was 88.75%. The fund appears to have underperformed by 3.63%. over the 1 year period. When I asked BlackRock for an explanation, this was what I was told:
- Fund holds 332 stocks v 768 stocks in the Index
- Colombia and Morocco, no exposure due to being small and illiquid local markets. No liquid ADRs available.
- ADR/GDR exposure for 5 countries. Argentina, Chile, India, Peru and Russia.
- India local stocks incur 10% CGT, ADRs and GDRs do not.
- Russian local settlement in rubles is still problematic for foreigners. Most foreigners trade ADRs/GDRs in London and New York.
- ADR/GDR performance will differ from local stock performance due to differing time zones, currencies and premiums and discounts.
- Due to local regulations we are not allowed to trade various currencies, these currencies are "Auto-fx'ed" by the local custodian
- These Auto-fx rates will differ from the rates used by the Index as the custodian tends to trade on settlement date rather than trade date.
- Holders suffer withholding tax on Taiwan stock splits at 20%, the Index is unaffected.
So it looks like things are more complicated than it seem. But I am most concerned that the ETF that holds only a small basket of stocks compared with the index (332 stocks v 768 stocks).
So what can investor do? I am keen in the Vanguard Emerging Market Fund domcile in Ireland. Launched in 8 November 2006 its USD share class performed 6.68% per annum as at 31 July 2010. This compared with 7.08% per annum of the index return. Consider its expense ratio being 0.65% per annum, the underperformance of -0.4% per annum is unexpectedly good. Currently it has 818 stocks compared with 749 stocks (strange, why it has more stocks than the index? Oversampling?) The catch? Retail investors cannot buy this fund. Talk about Singapore being a world class wealth management hub!
My personal wish: That Vanguard will bring in all its Ireland domciled funds (especially the Emerging Market one) to Singapore for retail investors and allow investors to invest using regular saving plan (RSP).
Like this article? Subscribe to my newsletter below for more.