Russia equity funds lead the pack in 2016, edge out Brazil

* Russian, Brazil funds top equity league tables

* Asia-focused equity funds biggest losers of 2016

* Gramercy tops EM bond fund ranking with HY focus

* TABLE-Leaders and laggards in 2016:

* GRAPHIC-Emerging markets in 2016: http://reut.rs/1ZKAaO6

By Claire Milhench

LONDON, Jan 13 (Reuters) - Russian equity funds rocketed away from their emerging market peers in 2016, overtaking Brazilian funds in the second half, whilst on the emerging debt side it was contrarian bets in beaten down Latin American names that paid off.

And although the spectacular returns are unlikely to be repeated in 2017, top performing managers say there is still value to be had, with dips presenting buying opportunities.

Russian funds filled the top three places in a league table of emerging equity funds based on performance data from Lipper, after an oil price recovery kickstarted the economy.

A win for Donald Trump in the U.S. presidential elections also helped push the Russian stock market to record highs , as it signalled a thaw in relations, with investors betting that Western sanctions could be eased by end-2017.

Chris Bannon, fund manager of the Pictet Russian Equities fund, which topped the equity table with a return of over 70 percent, said he was optimistic for 2017, seeing potential for more upside driven by earnings growth, coupled with today's cheap valuations.

"With (Other OTC: WWTH - news) the OPEC deal, the risk of a serious oil price correction has been reduced," he said, adding that the economic recovery was being led by the monetary easing cycle and not dependent on a high oil price. "We expect 200 basis points of interest rate cuts in 2017."

A tilt towards domestic-oriented companies helped drive fund outperformance in 2016, as well as off-benchmark picks in the mid-cap space such as oil company Bashneft.

For 2017, Bannon sees value in telecoms names such as MegaFon and property companies such as LSR and Etalon, which should benefit from falling interest rates.

The average performance for the Lipper Global emerging equity fund segment was 13 percent, an improvement on 2015's -9.5 percent. MSCI (Frankfurt: 3HM.F - news) 's benchmark emerging stocks index closed 2016 up 8.5 percent.

Flows also improved, with a net $1.76 billion of inflows to emerging equity funds in 2016, according to data from EPFR Global, compared with $68.1 billion of net outflows in 2015.

Brazilian and Latin American funds, which led the pack at the mid-year mark, still filled out five of the top 10 spots in the equity table at year-end. The worst performers were mainly Asia-focused funds, covering China, India and Korea.

SWIMMING AGAINST THE TIDE

For the best performing bond fund manager, swimming against the tide and snapping up the unloved names paid off in 2016.

Just as in the equity sector, average bond fund performance improved on 2015, returning around 10 percent versus -5.7 percent the year before. Flows also rebounded, with some $39.2 billion of net inflows, compared with 2015's $37.2 billion of net outflows, according to EPFR Global.

Gramercy's Total Return Allocator EM Debt fund, which topped the table with a 35 percent return, outperformed by focusing on high yield corporates such as Brazil's Odebrecht , which were initially punished by the market.

Although the engineering firm was sucked into a bribery scandal, the bonds recovered from the low 30s in August to finish the year at around 60 cents in the dollar after Odebrecht signed a leniency deal with prosecutors.

"It was never facing a liquidity problem but the market traded it as such - yet it was a fundamentally strong company," said Gunter Heiland, a partner at Gramercy.

Another contrarian pick that performed well was pipe-maker Mexichem, which benefited from lower labour costs after the peso weakened, lower oil prices, and hard currency earnings from overseas sales.

"One of the big misperceptions is that when currencies are weaker, that is universally negative for an emerging corporate," said partner Jeff Grills. "But Mexichem enjoyed significant margin expansion."

The fund remains overweight Latin America for 2017 but is underweight Asia, where valuations look stretched and yields are low. Heiland said investors should expect some ups and downs in 2017, but the down periods would be an opportune time to buy.

And although the U.S. Federal Reserve has signalled it wants to raise rates, potentially creating headwinds for the asset class, Heiland questioned whether they would take off as quickly as some expect. "I am sceptical that rates will skyrocket - we're taking more of a moderate view," he said.

(Reporting by Claire Milhench; Editing by Toby Chopra)