(Bloomberg) -- Some U.S.-based mutual funds focused on emerging-market stocks have done so well at limiting losses in 2015 that, by one measure at least, it’s been one of the sector’s best ever.

As the MSCI Emerging Markets Index heads for its third straight annual decline, 34 of 65 U.S. funds that track the benchmark had beaten it through last week, data compiled by Bloomberg show. That’s 52 %, up from 38 % in 2014, 49 % in 2013 and the fourth-highest percentage of outperformers in the past 15 years.

Underneath the overall weakness, developing countries and companies are starting to move at different speeds as the forces that lifted them as a group in the past, including the rise of China and capital flows, reverse course. That divergence has allowed investors to better pick winners and losers -- favoring commodity importers over exporters, technology stocks over industrial companies -- and deliver better returns than the benchmark, or at least results that are less bad.

“This dispersion really created opportunities,” said Sammy Simnegar, who oversees $6 billion in emerging-market stocks at Fidelity in Boston. “Increasing dispersion means a higher chance of outperformance for active fund managers.”

The MSCI Emerging Markets Index fell 15 % on a total-return basis this year through Dec. 18, after losing about 2 % in each of the previous two years. That’s the longest losing streak since 2002.

The average performance has masked growing gulfs between the countries. While stock gauges in Hungary gained 27 % and China advanced 6 % in dollar terms this year as of Dec. 18, Colombia, Brazil and Turkey tumbled at least 32 %.

After more than a decade of moving in unison, developing nations are becoming a less homogeneous group as the growth slowdown in China and higher borrowing costs in the U.S. expose the economic and financial shortcomings of some countries.

While a 26 % decline in Bloomberg’s measure of commodity prices hurt exporters such as South Africa and Indonesia, it’s a boon for importers including India and Taiwan. At a time when Brazil and Colombia have raised interest rates to combat inflation, traders are betting China and South Korea will lower borrowing costs to spur growth.


In China, traditional state-owned enterprises are crumbling amid overproduction, while private technology firms catering to the middle classes are booming. Shares of Aluminum Corporation of China, the largest producer of the metal in the country, fell 34 % this year as of last week as Tencent, China’s second-largest Internet company, gained a similar amount.

“You really need to focus on each of these countries, and not just on EM as an asset class,” said Nick Niziolek, co-chief investment officer at Calamos Investments, whose emerging-market fund has lost just over 9.4 % so far this year, less than all but two of the 64 others.

Emerging-market commodity stocks have historically done well, but "over the last four, five years, you’ve seen the air come out of those types of companies,” Niziolek said by phone from Naperville, Ill. “The new growth opportunities are in technology and consumption."

On average, 46 % outperformed from 2001 to 2014, data compiled by Bloomberg show. The highest was 69 % in 2012.


None of the 65 funds eked out positive returns this year. The $452 million Goldman Sachs Emerging Markets Equity Fund declined 6.4 %, topping the ranking of the funds with assets of at least $100 million and more than five years of history.

Next was the $9.7 billion Virtus Emerging Markets Opportunities Fund, which fell 9.4 %, followed by the $501 million Calamos Evolving World Growth Fund.

They beat the benchmark by being overweight on India, buying consumer and technology stocks and avoiding the energy and materials sectors.

As of the end of September, Goldman Sachs’s fund, managed by Prashant Khemka and Basak Yavuz, held 29 % of its assets in consumer discretionary and staple stocks, compared with 18 % in the MSCI benchmark, according to the fund’s website. Virtus’s manager Rajiv Jain had 31 % of his holdings in India, compared with less than 9 % in the benchmark, and owned only 0.5 % in energy stocks.


The focus on differentiation was also reflected in money flows to exchange-traded funds. While U.S. investors withdrew $2.8 billion from ETFs investing in all emerging markets, they added $1.8 billion to funds focused on India, $454 million to China funds and $341 million to Russia funds, according to data compiled by Bloomberg.

The divergence will persist, said Dara White, global head of emerging markets equities at Columbia Threadneedle Investments, by phone from Portland, Ore.

"There are certainly a lot of headwinds affecting EM as a whole, but they are not all equal," said White, whose $1 billion Columbia Emerging Markets Fund lost 10.3 % this year as the fifth best performer. “You always needed to pay attention on the company level with an eye on the macro, but this is more important than ever, when you go through downturns similar to the last few years, because there is no rising tide lifting all boats."

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