Actively managed funds focused on the fastest-growing areas of the world often have high charges, reducing the returns investors will see.
With this in mind, FE Trustnet looks at three trackers that give investors direct access to high-growth markets – at a fraction of the cost of actively managed funds.
Indonesia – Market Vectors Indonesia
The FF Indonesia fund is the best-performing fund in the FSA offshore recognised universe over the last 10 years, returning 1,088.48 per cent over the period.
However, it has a relatively high total expense ratio (TER) of 2 per cent.
Only four Indonesia-dedicated funds are available to UK investors – none of which are UK-domiciled – and only three have a track record of longer than one year. The charges on these vary from 2.29 per cent to 1.9 per cent, according to FE Analytics.
The Market Vectors Indonesia ETF has managed to deliver returns close to those of the actively managed portfolios, with charges of just 0.59 per cent.
Performance of funds over 3 yrs
Source: FE Analytics
While investors would have been better off in one of the actively managed funds, the Market Vectors Indonesia ETF has made 56.16 per cent over three years, with a tracking error of just 12.8 per cent.
The ETF is also less volatile than the actively managed funds, with an annualised score of 19.54 per cent over three years, compared with about 21 per cent for the three actively managed portfolios.
Thailand – iShares MSCI Thailand Capped Investable Market Index
Thailand funds have been among the top performers in the FSA Offshore Recognised universe over the last decade, with returns exceeding 800 per cent in some cases.
Two of the top-10 portfolios are Thai-focused, with the five crown-rated JP Morgan Thailand picking up the most at 867.66 per cent.
In spite of these impressive returns, over the last three years investors would have been nearly as well-off in a tracker and without the hefty charges that come along with such niche portfolios.
Over the last three years, the iShares MSCI Thailand Capped Investable Market Index fund made 135.86 per cent, outperforming three of the six Thai-focused portfolios in the offshore universe.
The passive vehicle has also significantly outperformed other single-country trackers in the Asia Pacific region over the period.
Performance of funds vs index over 3yrs
Source: FE Analytics
The five crown-rated Allianz Thailand Equity portfolio is the best-performing of the actively managed Thai vehicles over the last three years, picking up 184.82 per cent.
Its TER is 2.23 per cent, however.
Charges for the others range from 2.48 per cent for the Templeton Thailand fund to 1.85 per cent for the HSBC GIF Thai Equity portfolio – both of which underperformed the tracker over the period.
The ETF has a relatively high tracking error to its benchmark, at 14.49 per cent.
India – iShares S&P India Nifty 50 Index
Even though India’s growth has been sliding for the last several quarters and is predicted to hit 5.3 per cent this year, its lowest level since 2004, it is still one of the fastest-growing countries in the world.
While Latin America-focused portfolios have led the charge over the last 10 years in terms of total returns, several India portfolios are not far behind.
However, unlike their Latin America counterparts, actively managed funds in India have outperformed their passive peers across the board over the last five years.
The JPM India and HSBC GIF Indian Equity funds are among the top-performing funds of the last decade – and the only pair with a 10-year track record – delivering 537.36 per cent and 473.64 per cent, respectively.
Over the last five years, the five crown-rated First State Indian Subcontinent and Aberdeen Global Indian Equity funds are the best performing of the India-focused portfolios.
The funds carry hefty surcharges for their outperformance. The $1.9bn JP Morgan portfolio has a total expense ratio of 2.1 per cent and requires a minimum initial investment of $35,000.
The $3.7bn HSBC fund is more affordable: its minimum initial investment is $5,000 and its TER is 1.92 per cent.
The five crown-rated Aberdeen portfolio requires a minimum investment of just £1,500 but has a TER of 2.14 per cent, while First State’s vehicle is soft-closed.
Investors can access the volatile country’s growth through the four crown-rated iShares S&P India Nifty 50 index.
The passive vehicle has the second-lowest tracking error of any India-centric ETF over three years, at 4.55 per cent, and carries a TER of just 0.89 per cent.
Over the last three years, the tracker has picked up 4.23 per cent, beating half of the India-focused portfolios in the IMA universe.
Rob Gleeson, head of FE Research, says managers are more capable of outperformance in India due to their niche knowledge of the country.
"India has a well-developed mutual fund market, so there are a lot of local managers," he said.
"If you look at the performance of the local funds, if they can outperform their market, there’s likely something there."