PA ANALYSIS: Is a lack of liquidity or competition behind GEM fund closures?
From PA ANALYSIS Feb 13 2012 BY: Gary Corcoran
, Group Editor
, Portfolio Adviser and International Adviser
The soft closure of the GLG Japan CoreAlpha funds announced this morning is the latest in a series of fund closures that are based on opportunities in developed and emerging Asia as well as other emerging markets.
Is this down to a lack of competition among the fund groups or a problem with the lack of stock opportunities in the markets concerned? Or answer (c), all of the above?
Earlier this month, Aberdeen Asset Management announced its desire to soft-close its £2.7bn Aberdeen Emerging Markets Fund having already brought in several measures to slow flows into its entire range of emerging market funds over the past few years.
In a letter to “significant investors”, the company said: “To maintain this level of long-term performance for your clients we have now got to the stage that we are exploring the possibility of closing our pooled funds to new business.
"If flows continue at their current levels we are likely to encounter liquidity issues in some of our holdings and we are not prepared to compromise the quality of our portfolios by investing in stocks of lesser quality."
As far as emerging market and Asia fund investing goes, Aberdeen and First State are the two “monster franchises”, as Darius McDermott, managing director at Chelsea Financial Services, describes them.
First State runs a combination of Asian, single country and global emerging market propositions and, while its two flagship funds - its Global Emerging Markets and Global Emerging Markets Leaders funds - are still open to new business, it has a track record of closing funds if it feels they are too big. As recently as last month, it soft-closed its Greater China Growth, Global Emerging Markets Sustainability, Indian Subcontinent, Latin America and Asia Pacific Sustainability funds with a combine total of just over £1bn of assets under management.
Emerging markets had a shocking 2011 and there was not one single fund in the IMA’s Global Emerging Markets sector that gave positive returns. The best performer, according to FE, is the SJP GEM Fund - not coincidentally run by First State’s Jonathan Asante - that returned -3.63% for the 12 months to the end of December.
As did GLG Partners this morning, liquidity concerns are behind Aberdeen and First State’s decisions to soft close their funds so the answer to the question asked is undoubtedly (c).
While there are some very good emerging market/Asian fund houses out there (Lazard, Fidelity, HSBC among them), Aberdeen and First State are streets ahead in terms of how they are perceived by investors as well as their historical returns and ability.
Later this week we will look at alternatives to Aberdeen and First State that investors should perhaps look at for their emerging market exposure.
For those interested in looking at alternatives to the GLG Japan CoreAlpha funds, McDermott suggests the Invesco Perpetual Japan Fund of the Jupiter Japan Income Fund.