Global Emerging Markets Equity

Global Emerging Markets Equity funds’ performance varies significantly across the category, with the best 5% of the funds in the universe outperforming the market (pegged to MSCI Emerging Market Index) by approximately 22% and the worst 5% underperforming by approximately 16% over the last 52 weeks (ending October 1, 2010).What role do favourable style allocations play? We take a closer look at common factors describing the best and worst funds on an aggregate basis. When funds are aggregated in a group, their common factors crystallize and specific bets are diversified away, which provides the basis for such an analysis. Our analysis suggests that the top- and bottom-performing funds, on average, invested in quite different emerging market segments which impacted their performance. While top-performing funds benefited most exclusively from stock selection, the worst performers were negatively impacted by having high exposure to cash and bonds, and limited exposure to favourable emerging market segments. Using an attribution framework, we were able to quantify the impact of each bet on the overall performance. Please note that our conclusions may change if a different timeframe is used to select the best/worst funds.