Going regional
There a number of ways to invest in emerging markets, be it via a generalist regional fund or a country-specific fund. Michael Heapy, investment analyst at Iboss, is a fan of the former approach.
“We have a permanent weighting to the GEM sector but it continues to be via regional rather than any country-specific funds,” he says. “We don’t feel it is our area of expertise to be calling individual countries in a sector that is anything but homogenous.
“We increased our GEM weighting at the back end of 2016, based on better relative demographics, growth trajectories and less elevated market levels than many developed countries, though most notably the US. The American situation has been further exacerbated by the Trump and his protectionist (so far) rhetoric; basically, we like emerging markets even more on a relative basis.
“The active funds we are holding in the sector are the Newton and Invesco Perpetual global emerging markets funds. Both are managed by high-conviction managers, for example, Dean Newman at Invesco Perpetual has a 5.5% weighting to Russia. Many managers simply shun such countries as just too difficult to invest in.
“At Newton, manager Rob Marshall-Lee has a nearly 30% weighting to India compared with the sector average of nearer 12%, and he has also benefited from a large sector overweight position in both consumer discretionary and consumer staples. These funds are complemented by the passive L&G GEM Index Fund, which provides additional breadth within the sector.
“We are currently considering bringing in the Hermes Emerging Market Fund, which continues to perform very well, but the current drawback for us is the ongoing charge fee, which is higher than many of its peers. Within our team the cost/return debate is an endless piece of work.”
Bumpy road
John Husselbee, head of multi-asset at Liontrust, says that while a diversified portfolio would typically include emerging markets, this part of the world is often deemed higher risk so makes more sense for someone early in their investing career, say, aged between 30 and 40, than closer to retirement.
“Investors willing and able to take more risk are better positioned to withstand the bumps in the road that inevitably come with developing economies,” says Husselbee.
“As we scan the globe for investment opportunities, we see emerging markets and Asia as two of the more attractive areas in a world where nothing screams value.
“When fears around US protectionism and changing trade agreements under Trump led to both of these regions dropping off at the start of the year, we took advantage and topped up our holdings.
“At present, however, while we are keen to add further exposure, we will not do so at inflated prices.”
