SM: It is always dangerous to generalise but in my experience some of the smartest guys out there are in the bond space. For example, emerging markets look quite interesting when you slice and dice them. The danger is treating them as a homogenous block.
And you have to pick your fights. Maybe don’t worry about China, as Brazil and India look interesting. We have a little investment in a Vietnam fund and that has done very well. The fundamentals there look fantastic.
BT: Break it down between, say, a frontier fund versus an Asian fund versus Latin American exposure, as they are such different beasts.
GC: Given that, do you invest in global equity funds and let someone else make any emerging market allocation decisions?
MP: We like India at the moment, from a fixed interest and an equity perspective. The reform process going on there, as much as it might be painful at times, means we are still seeing some very strong growth rates.
India has a lot of hurdles to jump but it is an emerging market I like. Vietnam, I really like but we cannot invest a sizeable amount there, and Russia is another one that looks very interesting.
SM: The Africa story is one that gets trotted out on a regular basis.
MP: The last time we earned any money in Africa was in 2005.
DHR: You have to draw a line under where you can deploy your expertise. You have finite resources and you must make a decision about where to delegate.
Will I invest in Asia, Japan or globally? If I have a good fundamental reason, maybe I will go into Africa. There are some good hedge fund managers operating there but I have to ask if there is a good structural story in emerging markets and time to allocate.
GC: How do you get genuine diversification in a portfolio today?
BT: You have to understand the risks. As long as your investments are driven by different things then you get diversification. There are some bond clients who have only ever bought bonds and are nervous of equities. But some dividend-paying equities might be really good if you get a bond sell-off. Volatility might rise but your true risk diversification could improve.
