Three emerging market investment trust picks

After investigating the pros and cons of trusts over funds, Cherry Reynard picks out three emerging market trusts for investors in the region.

All bar one, which is less than six months old, are current Money Observer Rated Funds, so are proven quality and have been delivering consistently good returns in their sectors.

Fundsmith Emerging Equities

Launched in June of this year by the outspoken Terry Smith, the former head of Tullett Prebon and founder of Fundsmith, the Fundsmith Emerging Equities trust takes a buy-and-hold strategy, focusing on high-quality companies with the majority of their operations in developing markets.

The portfolio is concentrated, with 30 to 55 stocks, and largely focused on consumer names, such as emerging market subsidiaries of Nestlé and Unilever.

The trust takes a similar approach to the group's Equity fund, launched in 2010. That fund has performed very well, beating its benchmark in 2012, 2013 and 2014 year to date. It is now £2.1 billion in size.

The key drawback for Emerging Equities is that it now trades at a 9.5% premium to net asset value (NAV), rare for a trust in the sector.

BlackRock Frontiers

The BlackRock Frontiers investment trust was launched in January 2011 to invest in markets at the earliest stage of development.

Markets may be considered "frontier" either because they are partly closed to foreign ownership, or because they are based in countries with very low GDP per capita. They could include Nigeria, the United Arab Emirates and Bangladesh.

Managed since inception by Sam Vecht, the trust is up 89%over three years. It had an unpromising start, however, dropping over 30% in its first year.

The trust has an innovative structure, designed to protect against significant widening of the discount at times of market dislocation. It has an automatic wind-up after five years. This has acted to keep the discount at a reasonable level and the trust currently trades at a small premium.

JPMorgan Emerging Markets

JPMorgan Emerging Markets is one of the giants of the sector at £843 million. Veteran emerging markets investor Richard Titherington handed lead management of the trust to Austin Forey last year.

The group prides itself on its global reach, with analysts on the ground in many of the countries in which it invests.

The trust had a weak 2013, which set aggregate performance numbers back. Prior to that, it had outperformed the wider global emerging market equity sector in three of the four previous calendar years.

The trust currently trades at a 10% discount to NAV, which is in line with its long-term average.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.