After what seemed to be a never-ending positive run, emerging markets finally succumbed to growing concerns about growth in the region, particularly China, at the end of 2013 and coming into this year.

However, there are some bright spots on the horizon, including emerging markets.

The sharp sell-off seems to have come to an end, and with the pause of breath comes a new wave of enthusiasm from some parts of the market, with even emerging market debt starting to see some positive signs among all the doom and gloom.

Jeremy Roberts, head of UK retail sales at BlackRock, notes: “Emerging markets are set to be a key investment theme in the second half of 2014 as advisers intend to increase their clients’ allocations significantly to this asset class. According to a survey of London-based wealth managers and financial advisers, three-quarters (73 per cent) anticipate increasing their clients’ exposure to Asian equities and three in five plan to raise allocations to emerging market equities.

“A rebounding recovery in Europe has also prompted a renaissance for European equities. 53 per cent of those surveyed are optimistic in their outlook for the region, compared with just 11 per cent optimism about the global economy and 45 per cent about the UK economy.”

The renewed sense of optimism among both emerging and developed markets, combined with the equity rally last year, means the findings of our annual closet trackers and red flag funds research, are slightly more positive than previous years.

In terms of the closet trackers identified by the Investment Adviser metric, there are just eight funds on the list, slightly lower than last year. Although many point to the fact that while the R-Squared figure is high, in a positive equity market such as the past three years this is not necessarily a bad thing as it demonstrates they are picking the right stocks.

The interesting thing will be how many of these remain in the list next year once last year’s sell off in emerging markets and expected volatility in the second half of this year start to impact the three year figures.

Meanwhile the number of funds included in the red flag funds list has fallen for only the second time since we began our research in 2010. This year there are just 40 funds that appear to be at risk of being closed or merged away, down from 58 in 2013. There are a number of possible reasons for this, most likely the fact that the five-year performance of some funds has improved, helped by the market rallies, and secondly that investor inflows into equities have been consistent allowing even the smaller funds to build up their assets.

That said, there remain a number of stalwarts of the list, with eight funds having fallen into the metric for the past three years. In addition, the number of recurring funds from 2013 into this year has almost doubled from 18 to 32, which suggests there remains room for further consolidation.

Meanwhile, the past 12 months have once again proven the robustness of the red flag methodology, with last year’s list identifying three funds that have since closed – Bedlam Europe, JPM Balanced Total Return, and Psigma UK Growth – three that have been merged into other vehicles and three which have since been renamed.

The second half of 2014 is likely to see plenty of volatility as the effects of the ECB’s recently announced monetary policy measures start to filter through, while US tapering is expected to finish by the end of the year.

With macro becoming more of a driver of performance of some asset classes and strategies, it will be interesting to see how far next year’s research results will differ from the relatively positive conclusions in 2014.

Nyree Stewart is features editor at Investment Adviser