Emerging market funds soft close ahead of market rebound

Several emerging markets funds have soft closed recently to stem investment pouring into the strategies and provoking “capacity” issues.

Mutual funds opt for soft closure to allay concerns about surging assets hindering a manager’s capacity to invest nimbly in small cap stocks.

In January 2012 First State Investments soft-closed First State Asia Pacific Sustainability First State Indian Subcontinent, First State Global Emerging Markets Sustainability First State Latin America and First State Greater China Growth to protect the interests of existing investors.

Simon Ellis, managing director of Legal & General Investments, attributes the recent spate of soft closures in emerging market funds to “capacity concerns”, adding this trend will probably continue throughout 2012.

Despite these closures, he said the appetite for emerging markets funds is strong as “investors recognise the superior growth prospects evident in the developing world but they may be concerned at how best to access the opportunity.”

Aberdeen Emerging Markets achieved the greatest monthly inflow in January among funds in the global emerging-markets category, with €600m in new assets.

Newly published S&P Indices data shows emerging markets are outperforming developed markets by some way so far this year. Emerging markets are up 18.95% year to date, while developed markets are up 10.31%.

The strongest performing emerging markets in February included Egypt (15.25%), Thailand (9.85%) and Russia (9.5%).

The best developed markets in February were Nordic countries Norway, Denmark and Sweden, up 13.77%, 13.48% and 10.18% respectively.

L&G argued investors looking for broad exposure to emerging markets should consider passive funds.


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