BOSTON - Bottom-up portfolio management styles outperformed top-down styles in emerging markets investing, according to the Micropal Emerging Market Fund Monitor.
For the analysis, the Micropal Monitor measured the performance of 13 of the longest running and largest global emerging market equity funds.
Five funds follow a mainly bottom-up approach, while the other eight follow a mainly top-down approach. The time period used in the analysis was the 40 months from March 1992 through the end of June 1995.
Micropal subdivided the 40 months into six shorter periods representing three periods when emerging markets generally were increasing in value and three periods when the markets generally were declining in value.
The bottom-up funds, on average, performed better than the top-down funds in five of the six time periods.
In addition, for the entire 40 month period, they averaged returns 19% better than the top-down funds.
"I think many people will be surprised at our findings, as most anecdotal evidence seems to suggest that top-down investing is the better approach when dealing with illiquid and volatile markets," said Ian Wilson, editor of the Monitor.
The top fund, which is bottom up, was Templeton Emerging Markets Fund Inc., with a cumulative 79.25% return over the 40-month period. The second-ranked fund, Pictet TF Emerging Markets Fund, which is also bottom up, turned 73.13%.
Morgan Stanley Emerging Markets Fund Inc., which was ranked in third place, was the only top-down fund among the top six in performance. That fund returned 71.9%.
But Morgan Stanley also was one of the most volatile funds in the group. The Morgan Stanley fund tied in terms of volatility with Fleming Emerging Markets Investment Trust, another top-down fund.