30th March 2015
The conventional wisdom today says that Emerging Markets are likely to struggle in the face of some stiff headwinds writes Tom Stevenson, investment director at Fidelity Personal Investing…
These include: a rising dollar, which piles the pressure on countries and companies with debts denominated in the US currency; rising bond yields in developed countries, which make it less attractive for American investors, especially, to invest overseas; and commodity price weakness, which hits the developing world’s natural resource exporters hard.
Generalising about emerging markets is unhelpful, however, because this is a diverse investment class. There are plenty of countries in the developing world which actually stand to benefit as much as Western countries from lower energy and falling commodity costs. Asia, in particular, stands out as a region which continues to look well-placed in the current environment. Countries like India have received a boost from the lower oil price and falling inflation and growth in the region as a whole is well ahead of that in the developed world. Long-term investors are likely to want an exposure to the world’s fastest growing regions, whatever the short-term issues.
The region is also a great hunting ground for stock-pickers. In less well-researched markets, fund managers with an on-the-ground presence of analysts stand a good chance of enjoying a competitive edge and beating the market.
1. JP Morgan Emerging Markets Fund: The first of this week’s “five funds” has a weighting towards one of Asia’s most interesting markets, India. Although not the cheapest market in the region, India has enormous potential thanks to a young and growing population, good tertiary education and a reformist Government under new Prime Minister Narendra Modi. This fund run by Austin Forey and Leon Eidelman, has a particular focus on India, with 40% of its assets in emerging Asia. This is a real stock-picker’s fund, run by an experienced team with a relatively-concentrated portfolio.
2. First State Asia Pacific Leaders: As its name suggests, the fund has more of a focus on the region’s developed markets and invests mainly in larger companies. Run by veteran investor Angus Tulloch, the fund is relatively concentrated and looks for high quality companies with good managements and strong balance sheets. It takes a relatively long-term view of its investments. All of these features combine to make this a good core holding for investors looking for Asian exposure.
3. Fidelity Emerging Markets Fund: As an investment house, Fidelity is known for its active stock-picking approach and this is definitely the approach taken by Nick Price, manager of the Fidelity Emerging Markets fund. He largely ignores benchmarks, preferring to construct his portfolio from the best ideas in the different regions covered by an extensive team of analysts. Price has a preference for dividend-paying companies.
4. Schroder Asian Alpha Plus Fund: This is one of the more concentrated Asian funds on the Fidelity Select List. Managed by Matthew Dobbs, he is an extremely experienced investor in Asia, with more than 30 years under his belt at Schroders. He is a stock-picker who takes advantage of his firm’s extensive network of analysts across the region but also factors in macro-economic influences on the fund’s holdings. He tends to hold between 40 and 60 stocks and usually excludes Australia from the fund’s geographic spread.
5. Lazard Emerging Markets Institutional Fund: Finally, this portfolio, run by another very experienced emerging markets investor, James Donald, is a value-focused fund with a bias towards China among its top holdings.