Fund buyers have flagged the possibility of the country's largest emerging market equity funds reopening after outflows and market falls prompted a sharp drop in assets.
Aberdeen’s Emerging Markets equity franchise and First State Global Emerging Markets Leaders both effectively soft-closed to new investment last year when the two asset managers introduced initial charges of 2% and 4% respectively.
Since then, however, the emerging market sell-off which first began last summer has accelerated, most notably at the start of 2014.
Assets in the offshore Aberdeen Global Emerging Markets Equity fund, for example, peaked at $16.7bn (£10.1bn) when it soft-closed in February last year, according to FE data.
Its asset base had subsequently fallen to $10.5bn (£6.4bn) by the end of the year.
The onshore Aberdeen Emerging Markets Equity fund, meanwhile, fell from £4.1bn last February to £2.4bn by the end of 2013 – prior to the latest downturn in the asset class.
Last month saw $12bn pulled out of EM equity funds, compared with a $15bn outflow for the whole of 2013. Those redemptions, coupled with the 6% fall in the MSCI Emerging Markets index year-to-date, will likely have prompted further falls in the asset bases of EM equity funds.
The sell-off has already lead one fund to reopen: Baillie Gifford this month removed the initial charge from its Emerging Markets Growth fund after it halved in size following its 2011 soft-closure.
Neither Aberdeen nor First State currently have plans to reopen their portfolios. But the former has been hit by a “double whammy” of falling markets and relative underperformance, according to Darius McDermott, managing director of Chelsea Financial Services.
“Aberdeen is historically very good at emerging markets, but the asset class is out of love, and performance has been very bad,” he said.
“It would not be a surprise to see it reopen if EMs continue to fall out of favour and they do not take new inflows to replenish natural wastage.”
Total net outflows from Aberdeen’s GEM equity range in the nine months to 31 December stood at £2.8bn, according to the group.
First State’s flagship GEM fund has also seen a substantial fall in assets in recent months, The group’s Global Emerging Markets Leaders fund has seen assets fall from £4.4bn last August to £3.4bn by end-2013, according to FE.
Gary Reynolds (pictured), CIO at Courtiers, said First State may also reconsider its options if current conditions continue.
“Soft-closing was a bold and ethical decision; if you are in the EM space then it can be difficult to cope with the incessant cashflow. But if you are soft-closed and the markets turn away from you, then you do not want to be deterring money.”
Then and now: Aberdeen and First State fund sizes
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