Russia, Brazil Funds Top Equity League Tables

Russian equity funds rocketed away from their emerging market peers in 2016, overtaking Brazilian funds in the second half, whilst on the emerging debt side it was contrarian bets in beaten down Latin American names that paid off.

And although the spectacular returns are unlikely to be repeated in 2017, top performing managers say there is still value to be had, with dips presenting buying opportunities, Reuters reported.

Russian funds filled the top three places in a league table of emerging equity funds based on performance data from Lipper, after an oil price recovery kickstarted the economy.

A win for Donald Trump in the US presidential elections also helped push the Russian stock market to record highs, as it signaled a thaw in relations, with investors betting that western sanctions could be eased by end-2017.

Chris Bannon, fund manager of the Pictet Russian Equities fund, which topped the equity table with a return of over 70%, said he was optimistic for 2017, seeing potential for more upside driven by earnings growth, coupled with today’s cheap valuations.

“With the OPEC deal, the risk of a serious oil price correction has been reduced,” he said, adding that the economic recovery was being led by the monetary easing cycle and not dependent on a high oil price. “We expect 200 basis points of interest rate cuts in 2017.”

A tilt towards domestic-oriented companies helped drive fund outperformance in 2016, as well as off-benchmark picks in the mid-cap space such as oil company Bashneft.

For 2017, Bannon sees value in telecoms names such as MegaFon and property companies such as LSR and Etalon, which should benefit from falling interest rates.

The average performance for the Lipper Global emerging equity fund segment was 13%, an improvement on 2015’s -9.5%. MSCI’s benchmark emerging stocks index closed 2016 up 8.5%.

Flows also improved, with a net $1.76 billion of inflows to emerging equity funds in 2016, according to data from EPFR Global, compared with $68.1 billion of net outflows in 2015.

Brazilian and Latin American funds, which led the pack at the mid-year mark, still filled out five of the top 10 spots in the equity table at year-end. The worst performers were mainly Asia-focused funds, covering China, India and Korea.