Small Stock Funds Win Big In Emerging Markets FYI: Copy & Paste 5/17/14: Lewis Braham Barron's:
Regards,
Ted
If you're an investor who missed out on buying shares of the Wasatch Emerging Markets Small Cap fund before it closed in 2012, it's OK to be jealous. The fund (ticker: WAEMX) has delivered a stunning 20.4% five-year annualized return, nearly double the average emerging-markets fund's 10.5% and better than any of its peers.
Nor is Wasatch alone. A number of other strong performers in the same space have also closed to new investors. William Blair Emerging Markets Small Cap Growth (WESNX) closed in 2013 after less than two years of operation. And Grandeur Peak Emerging Markets Opportunities (GPEOX)—run by former Wasatch fund managers—closed in less than three months this March, with about $200 million.
Why is the sector attracting so many investors? Aside from the boffo returns, there's a practical aspect. When you invest in giants like Korea's Samsung, you're not getting much emerging-markets exposure. "If you look at the largest 10 emerging-market companies, they derive, on average, only 20% of their revenues from their local economies, and everything else is from exports," says Julie Dickson, co-manager of the Ashmore Emerging Markets Small-Cap Equity fund (ESCIX).
IN FACT, EMERGING-MARKET small-caps have provided a trifecta of desirable features for investors—higher returns, less volatility, and more diversification than their large-cap brethren.
Over the past decade, the MSCI Emerging Markets Small Cap Index has produced a 12.3% annualized return, compared with 11.1% for the MSCI's large-cap emerging index. Its annual volatility has been 20.9%, versus large-caps' 21.8%. And its correlation to the MSCI World Index for developed-market stocks has been 77% compared with large-caps' 81%. So, it's been better on all three counts.
One reason small emerging-market companies frequently perform so well is that they are often run by their founders and are family-owned, says Philippe Langham, manager of the RBC Emerging Markets Small Cap Equity fund (RSMAX). "There is clear evidence that family businesses have consistently delivered superior growth and cash flows," he observes. Such companies often have large insider ownership because they have so much family money invested. That incentivizes CEOs to do well, aligning their interests with those of shareholders.
ALTHOUGH WASATCH IS CLOSED, good funds remain available. Among them, Driehaus Emerging Markets Small Cap Growth (DRESX) seems promising. Its has produced a remarkable 21.1% annualized return since its inception as a limited partnership in December 2008. One unusual strength of this fund is that it can hedge against downturns. That has allowed it to lose only about half as much as its MSCI benchmark during down days.
If Driehaus has a weakness, it's that the fund has only three analysts and two managers covering the entire globe. "You need a deep bench of analysts," says Fritz Kaegi, manager of the Columbia Acorn Emerging Markets fund (CAGAX), which has 10 investment personnel. "There are thousands of small companies, and you want to have analysts meet with those companies." Although Acorn's fund was launched in August 2011, members of its team have managed some $2 billion in emerging-market small-cap money for the Columbia Acorn International fund (ACINX) since 2003. That fund has delivered a 12.6% 10-year annualized return, besting 89% of its international small-cap growth-fund rivals.
If researching managers seems to be too much trouble, you could buy an exchange-traded fund, such as the SPDR S&P Emerging Markets Small Cap (EWX). But taking time to find the right manager could pay off. Because emerging-market small-caps are so poorly covered by Wall Street, there are ample opportunities for good money managers to exploit. The SPDR ETF has produced only an 11.4% five-year annualized return. Compared with Wasatch's and Driehaus's numbers, that's nothing.
Take The Long View And Side-Step Investing In China
I agree with both of you - I think you cannot really go wrong with food, given global demand and what is going on with the severity of China's pollution both in terms of soil and water.
I've built a smallish position in Thai food/ag co Charoen Pokphand (
http://en.wikipedia.org/wiki/Charoen_Pokphand_Foods) and have considered Marine Harvest as well as a few other odds/ends.
For US Bond haters to consider CMan said ...
"Look at
@old_skeet's portfolio (no, not the
50+ funds he owns). He always has an allocation up his "sleeve" to be happy about regardless of what is happening in the market. Put one good index or well managed fund in each such sleeve and you can be equally happy."
By my thinking ... perhaps so ... perhaps not as you will not have become as diverisfied as I have as you will not spread out your manager risk in the sleeves where there is no index fit. And, many of the funds that I own have a history of bettering their benchmarks. Read rule number nine in the below link.
http://www.dryassociates.com/16_rules.htmI wish all ... "Good Investing."
Old_Skeet
Don't Leave Small-Cap Stocks For Dead I agree that a good diversified portfolio should hold a weighting to small caps. Currently, the small/mid cap sleeve of my portfolio represents about eighteen percent of the growth area of my portfolio. I have my target allocation to them set at twenty percent. So with this, I do plan to raise my allocation sometime between now and late fall by about two percent.
In viewing the WSJ's listing on P/E's Ratios & Yields I am finding that the Russell 2000 is selling at TTM ratio of 73.30 and on forward estimates at 18.21 while the S&P
500 Index is selling at a TTM ratio of 18.04 and on forward estimates at 1
5.8. Notice the large difference between the trailing twelve month (TTM) numbers. And, according to the article the Russell 2000 had a greater percentage of its companies recently miss their earnings numbers. With this, I am surprised that there has only been about a ten percent pull back thus far. I look for more downside to come as we move into and through summer as forward estimate numbers get revised (downward). Should this happen then the P/E Ratio will most likely rise. Perhaps, by the time fall arrives the stage will be set for us to have a good fall rally in small caps. Anyway, my current thinking is that small caps remain in overbought territory as I write based on their TTM numbers and in my belief that foward earnings estimates will be revised downwards as we approach second quarter reporting.
The above is Old_Skeet's Scientific Wild Ass Guess ... and, no one really knows what is going to take place until the event day arrives. I do know that summer is coming and it is time for a break. At least I plan to take one and perhaps the markets will too.
I have linked below my reference to the P/E Ratios.
http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=wsj_mdc_additional_ustocksIn addition, read rule number six in the below link.
http://www.dryassociates.com/16_rules.htmEither way it goes ... I'll be ok as I already have an ample representation to small/mid caps should they turn upward, I'll be at the party. Sould they continue to decline as I believe they will I have an ample supply of cash that I can do some buying and raise my small/mid cap allocation towards its target as I usually buy during a good pull back and/or correction.
Have a good weekend … and, I wish all “Good Investing.”
Old_Skeet
