* Russian, Brazil funds top equity league tables
* Asia-focused equity funds biggest losers of 2016
* Gramercy tops EM bond fund ranking with HY focus
* TABLE-Leaders and laggards in 2016:
* GRAPHIC-Emerging markets in 2016: reut.rs/1ZKAaO6
By Claire Milhench
LONDON, Jan 13 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.
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 U.S. presidential elections
also helped push the Russian stock market to record highs
, as it signalled 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 percent, 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
The average performance for the Lipper Global emerging
equity fund segment was 13 percent, an improvement on 2015's
-9.5 percent. MSCI's benchmark emerging stocks index
closed 2016 up 8.5 percent.
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.
SWIMMING AGAINST THE TIDE
For the best performing bond fund manager, swimming against
the tide and snapping up the unloved names paid off in 2016.
Just as in the equity sector, average bond fund performance
improved on 2015, returning around 10 percent versus -5.7
percent the year before. Flows also rebounded, with some $39.2
billion of net inflows, compared with 2015's $37.2 billion of
net outflows, according to EPFR Global.
Gramercy's Total Return Allocator EM Debt fund,
which topped the table with a 35 percent return, outperformed by
focusing on high yield corporates such as Brazil's Odebrecht
, which were initially punished by the market.
Although the engineering firm was sucked into a bribery
scandal, the bonds recovered from the low 30s in August to
finish the year at around 60 cents in the dollar after Odebrecht
signed a leniency deal with prosecutors.
"It was never facing a liquidity problem but the market
traded it as such - yet it was a fundamentally strong company,"
said Gunter Heiland, a partner at Gramercy.
Another contrarian pick that performed well was pipe-maker
Mexichem, which benefited from lower labour costs
after the peso weakened, lower oil prices, and hard
currency earnings from overseas sales.
"One of the big misperceptions is that when currencies are
weaker, that is universally negative for an emerging corporate,"
said partner Jeff Grills. "But Mexichem enjoyed significant
The fund remains overweight Latin America for 2017 but is
underweight Asia, where valuations look stretched and yields are
low. Heiland said investors should expect some ups and downs in
2017, but the down periods would be an opportune time to buy.
And although the U.S. Federal Reserve has signalled it wants
to raise rates, potentially creating headwinds for the asset
class, Heiland questioned whether they would take off as quickly
as some expect. "I am sceptical that rates will skyrocket -
we're taking more of a moderate view," he said.
(Reporting by Claire Milhench; Editing by Toby Chopra)