High-return nature of emerging markets sector is evident from the worst performers' 80% growth over three years

The high-risk, high-return nature of emerging market vehicles is reflected in the fact that even the worst performer in the Global Emerging Markets peer group generated a three-year return of 76.83%.

According to bid to bid data from Standard & Poor's, over three years to the end of July, Credit Suisse Multi-Manager Emerging Markets, which invests in several of its peers within the sector, was the worst performer overall.

Among its holdings are the overall top performer, Jupiter Emerging European Opportunities, and the fifth best cumulative performer, JPM Emerging Markets.

Having made a three-year return of 201.58% against the average fund in the sector's 111.54%, the Jupiter vehicle, which is managed by Elena Shaftan and Ingrid Kukuljan, was joined at the top of the table by another portfolio that focuses purely on emerging Europe, the second best cumulative performer Credit Suisse European Frontiers.

A consistent outperformer, the Jupiter fund generated returns of 34.11% against 11.87% in the first discrete 12-month period under examination, followed by 60.28% against 50.84% in the second and 40.31% against 23.13% in the third.

While the portfolio's focus is the entire eastern European region, the bulk of its assets, 50%, are invested in Russia with Poland and Hungary also receiving hefty weightings.

Run as a best ideas fund, the concentrated product currently invests in 34 names with its top 10 positions accounting for just over 50% of the whole.

Shaftan said: "Although there are several hundred stocks in the central and emerging Europe universe, we only consider a fraction of them to be suitable for inclusion in the portfolio on the basis of liquidity or company quality.

"This number continues to grow as more and more companies in the region seek to list."

Pointing out that their stock selection process takes macroeconomic trends into consideration, Shafton said markets have recently been hit with increased volatility on the back of concerns over US interest rates.

"The resulting investor risk aversion led to significant fund outflows from all emerging markets," she said.

"The Russian market was further affected by worries that the rate hikes would cause a global slowdown and hence a correction in commodity prices. Yet the worst affected market was Turkey, where its currency came under pressure given its high debt and current account deficit."

Currently around 5% of the fund's assets are invested in Turkey.

Credit Suisse European Frontiers, managed by Elizabeth Eaton, also has the bulk of its assets invested in Russia, at 57%, though its remaining investments are spread between a shorter list of countries than the Jupiter portfolio. Poland, Turkey, Hungary and the Czech Republic are its other main investment areas.

Another consistent outperformer, the vehicle delivered returns of 24.51% in the first discrete year examined, 60.22% in the second and 38.59% in the third.

Eaton agrees with Shaftan's assertion that the second quarter of this year proved especially volatile for emerging markets, pointing to the subsequent sell off being driven mainly by external factors, such as investor concerns over interest rates.

"Additionally, commodities were subject to a reversal of fortune and prices fell considerably across a wide range of metals, including copper and nickel," she said. "Oil and gas prices, however, remained buoyant. This had a profound effect on the emerging European region, as the bias toward commodity sectors remains in many markets."

Despite this, Eaton said she continues to find Russia highly compelling with valuations cheap while strong market fundamentals are in place.

"On the other hand, we remain concerned about Turkey, which is highly interest rate sensitive due to the country's high debt levels," she said.

At the opposite end of the peer group, the Credit Suisse Multi-Manager fund, which is run by Gary Potter and Robert Burdett, was joined by sector laggard First State Global Emerging Markets, which, despite being the second worst cumulative performer, delivered a three-year return of 80.37%.

Managed by Angus Tulloch, the portfolio has been a serial underperformer returning 5.03% in the first discrete 12-month period examined, 45.43% in the second and 18.09% in the third.

This portfolio has its largest geographic weighting to the Asian region, at 51%, with exposure to eastern Europe equaling 28% while Latin American exposure stands at 16%.

Tulloch put the fund's underperformance down to the fact that both emerging Europe and Latin America have outperformed emerging Asia.