With thanks to research firm Lipper, Money Post ranks the top and bottom performing mutual funds based on first-half performance. All returns are net of fees and all funds are approved for sale in Hong Kong. The funds are a snapshot of sentiment - they show where investors' dollars are flowing. The first-half performance of mutual funds shows the following trends: investors are going into emerging markets that are isolated from China and the euro zone, and are putting money into property and biotech. They are taking money out of resources, largely on the view that the China slowdown will continue to depress prices for industrial commodities. The euro-zone crisis is dampening demand for gold and fuelling nervousness about the global economy. For example, four of the top 10 performing funds are focused on emerging markets equities, three are invested in Asia-Pacific property and there are two biotechnology funds. The bottom 10 funds skew towards gold, natural resources and energy. This fits the prevailing talk of a global economic slowdown, which suggests lower consumption and lower prices for core industrial commodities such as iron ore, copper and oil. The top 10 funds show that emerging markets still pay out, but that some markets are emerging more than others. The BRICS markets (Brazil, Russia, India, China and South Africa) are out of favour, thanks to slowing growth seen in those nations. A new wave of fast-growing economies has stepped in. Turkish equities are the top performer of the survey group, a Philippines fund is number two and there are two Vietnamese funds in the top 10. 'Emerging markets are definitely preferred to developed markets, but the story about BRICS is yesterday's news,' says Arjuna Mahendran, head of investment strategy - Asia, HSBC Private Bank. 'Those countries have grown as fast as they can, and now interest is switching to the second layer - the next 11 as Goldman Sachs calls them, and the Philippines, in particular - which are outperforming quite strongly.' After years of stellar outperformance, people are wary of China equities. The economy is wobbly, the yuan is flat and inflation risk forever lurks. 'China is combating wage inflation - wages are rising at 20 per cent annually. It's not sustainable,' says Mahendran. The new thinking is that the labour-intensive manufacturing that has long driven the mainland economy is moving to cheaper markets such as Vietnam. Vietnamese equities' rise is largely explained by the government's recent success in cutting inflation. The country's inflation rate was zooming along at 18 per cent (annualised) in December, but by June was down to 6.9 per cent, says Wei Liang, a senior investment analyst for Amundi, manager of both the sixth best and second worst performing funds available in Hong Kong. Perhaps the most fashionable emerging markets story lies in the Philippines. The country is young and its overseas workforce is becoming more skilled and professional. This translates into more remittance income to the Philippines. The country's political system and finances are stable, and the credit agency Standard & Poor's this month upgraded the sovereign rating to BB+. The upshot is that the country is close to being rated investment grade, which would open a fresh influx of capital. 'Fund flows in the Philippines have been strong. Foreign investors have been net buyers [there] for a couple of years and the trend has continued into this year,' says Chang Qi Ong, manager of the JF Philippine Fund, number two in the top 10. So investors still like emerging markets, provided they are well insulated from the big negative stories such as China's slowing growth and the euro-zone crisis. This helps explain the appeal of the number one fund, Manulife's Turkish equities fund. Turkey's natural trading partners are Africa, the Middle East and, increasingly, the Commonwealth of Independent States (republics spun out of the former Soviet Union). This means Turkey is only moderately dependent on trade with the euro-zone and China. 'Turkey's performance is largely explained by the fact there is nervousness about a China slowdown and nervousness about the Russian economy,' says Stefan Herz, manager of the Manulife fund. Turkey has benefited, in particular, from an outflow of capital from Russia, with much of the money coming into Turkish equities, he adds. Asia-Pacific property, meanwhile, has bounced back from a difficult 2011. Adam Osborn, manager of Schroder Asia Pacific Property Securities Fund, says investors last year sold property stocks in big markets such as Hong Kong and Singapore on fears of an impending correction for real estate prices. But that did not happen, largely due to interest rates staying low and employment high in those markets. Investors have since piled back into property stocks. 'In 2011 the physical property market went up about 15 per cent in Asia, while the listed sector fell by 15 to 20 per cent,' says Osborn. 'This year has been a normalisation ... physical values have traded sideways, while listed prices have snapped back.' It is difficult to pin down the reasons for strong performance of two biotech funds in the top 10. Denis Schmidli, an equities product specialist for Pictet Asset Management, manager of the fourth best fund in the top 10, says biotech stocks rise and fall on news of drug approvals from major regulators. 'The pre-eminent driver for the industry is approval for drugs, such as FDA [Food and Drug Administration] approval, and here we have seen positive news flow recently,' says Schmidli. For example, one of the Pictet fund's core investments is San Francisco-based Onyx Pharmaceuticals, which jumped 76 per cent following a positive FDA recommendation for Carfilzomib, a potential cancer drug. Biotech is a concentrated industry. The two biotech funds in the top 10 performers count the same three stocks among their core holdings: Biogen Idec, Alexion Pharmaceuticals and Amgen, which helps explain why the two funds rose by nearly identical amounts in the first half. It's easier to understand the performance of the bottom 10 funds. One is invested in the mainland, and eight others are in gold, energy and related commodities. Their stories are entwined. 'There is a direct relationship between the commodities market and China's economic performance,' says John Woods, chief investment strategist, Citi Private Bank. 'China is responsible for about half of all commodity imports, so the country's sharp slowdown in growth in recent years is bound to have a negative impact.' A China Construction Bank fund that makes market bets based on government policy shifts slid 12.61 per cent in the first half, partly because mainland economic policies have not been that favourable of late, but mostly because of the slowdown in growth. Then there is gold. Three of the bottom 10 funds are purely invested in gold; the resources funds are also exposed to gold. Its recent falls have dragged down a lot of portfolios. It has slid 17 per cent from historic (non-inflation adjusted) highs in September 2011. Much of the decline is due to investors rushing into safe US-dollar assets, such as Treasuries, during the euro-zone crisis. Mahendran attributes gold's decline partly to the decline of the Indian rupee, which has lost one-fifth of its value against the US dollar in the past year. India is the world's biggest gold importer, he says, and as the rupee declines so does the ability of Indians to buy US-dollar denominated gold. 'Investors have tired of [gold],' Mahendran says. The top and bottom have their outliers. A Legg Mason Capital Management Opportunity fund, which has a flexible mandate to invest in almost anything based on opportunity, did well, thanks to no global macro trend in particular. In the bottom 10, a Polaris Taiwan equity fund dropped despite rises in the wider Taiwan share market. Taiwan is exposed to the growth slowdown on the mainland, but is also somewhat of an insulated market that marches to its own beat. There is one caveat. Most of the funds discussed here are volatile. They tend to move up or down by large amounts each year. So the fact that they have appeared in the bottom or top 10 may not speak to any particular strength or weakness, just that they are likely to move with greater volatility than, say, a fund focused on US Treasuries. For example, our number one fund, the Manulife Turkish equities fund, lost 32 per cent of its value last year. This market is volatile. Big declines tend to be followed by big gains. 'If you are looking for steady returns, Turkey is not the market to be in,' says Herz, the fund's manager. Schroders Asia Pacific Property Securities Fund, the seventh best performing fund sold in Hong Kong in the first half, lost 18 per cent last year. Those declines were typical of the other Asian Pacific property funds, which have all likewise since bounced back. Six months from now investors might be piling back into gold on renewed inflation fears as big economies such as China's surge back. The table might flip, with the bottom 10 becoming the top 10. In other words, past performance is no guarantee of future performance, except in the case of volatility, which tends to stay constant.