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Selectors prefer growth GEM funds but value performs better

European fund selectors expressed a preference towards growth emerging market funds over value during the last six months. However, Europe’s top performing funds allocated a greater weighting towards value stocks during the period.


Jassmyn Goh

Last Word Research found that 40% of fund selectors intended to buy growth emerging market funds while 25% preferred value funds between October 2017 and March 2018.

Morningstar data however shows that the top performing emerging market funds were mostly those that were more weighted towards value funds.

Seventy-five percent of Finnish fund selectors preferred growth funds followed by 55% French selectors, according to Last Word Research. Fifty percent of Spanish selectors and 43% Norwegians preferred value funds.

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Source: Last Word Research

However, when looking at Morningstar data at least three of the top five European-domiciled emerging market equity funds had allocated more towards value stocks.

The top fund, Nordic financial services group SEB Eastern Europe Small Cap C, returned 20.47% over three years to 28 February 2018. The fund allocated 33.4% to value stocks compared to 14.1% to growth stocks.

This fund was followed by Magna New Frontiers N EUR Accumulative fund that returned 15.79% over the same period and had allocated 30.75% to growth stocks, and 12.34% to value stocks.

Lithuanian, Invalda INVL Baltic fund and Austrian Meinl Eastern Europe T fund followed the Magna fund in returns at 15.3% and 14.6% respectively, and both allocated more than 50% to value stocks.

Rounding out the top five, Caspar Central and Eastern Europe Equity A Accumulative fund returned 13.63% for the three years to 28 February 2018. The fund did not provide information as to where they had allocated their holdings.

Looking at the average of European-domiciled emerging market funds, there was only a marginal difference in the allocations towards value and growth funds at 29.2% and 26.52% respectively. The average performance return for the same period was 3.45%.

Last Word Research also found that European fund selectors had a much larger preference towards large cap emerging market funds at 60% compared to 15% for small cap funds. The staunchest proponents of this preference were German fund selectors at 92% for large cap funds and Luxembourg selectors at 78%.

Finnish selectors preferred small cap emerging market funds at 45% and Swedish selectors at 36%.

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Source: Last Word Research