The past year has seen emerging markets underperform their developed counterparts by some margin with the emerging Europe (-23% on a dollar basis to end-April) the hardest hit, according to S&P data.
Fund analyst John Monaghan says that, in a risk-off environment, there has been a clear preference for higher-quality companies with earnings certainty and sound management teams. This works against emerging Europe where corporate governance remains a sizeable concern.
The issue of quality, he says, is the primary driver behind the team at Aberdeen’s decision to underweight Eastern Europe within its GEM portfolios.
He added: “The shift away from the region is reflected through the level of outflows experienced by a number of managers. In some cases, this has resulted in the closure of funds. This has indeed been the case for Hexam, which took the decision to close its formerly Gold graded Emerging Europe Fund due to lacking investor interest.
“Raiffeisen, meanwhile, has seen a reduction in its asset base. Although there is a performance impact to consider, its Osteuropa-Aktien product has fallen by around 50% in size over the past 12 months to the end of May 2012 to €540m. The teams at Barings and Charlemagne (running the Magna range) also reported a reduction in assets through client redemptions.”
Europe has not been the only region facing difficulties, and across emerging markets vehicles S&P Capital IQ has seen fund underperformance exacerbated by outflows as managers have been forced to sell into falling markets to meet client redemptions.