Much talk in the UK and Europe at the moment centres on heavy-weight champions listed on the index, with less enthusiasm offered towards mid and small-caps. But when it comes to emerging markets, the valuations of large caps are looking less attractive.
“We’ve moved down in market cap and reduced our portfolio exposure to large caps recently. This is to avoid headline risk and negative sentiment around inefficiencies in the market,” according to Paul Rogers, portfolio manager and analyst on the Lazard Emerging Markets Core Equity Fund.
“There are more attractive valuations in small and mid-caps which suit our opportunistic fund.”
Rogers is positive on China and recently upped the exposure of the fund in this region.
“We are less concerned than many investors about China’s growth. We think the government is taking the right steps to address concerns in areas such as the property sector.”
The stocks he picks are those which reflect China’s consumption trend, replacing export-led businesses, buying into consumer discretionary names. One of these is white goods, which plays to the home-owner theme and includes home and hardware for property expansion as well as auto dealers and manufacturers.
“Emerging markets are trading at broadly 10 times earnings. This compares favourably with the US, which is trading roughly at 18 and 19 times earnings,” Rogers said.
In order for emerging markets to recover, company earnings must go up.
“That will be a sign of a sustainable recovery,” he added.
The $56.6m Emerging Markets Core Equity Fund has seen a cumulative performance of 6.73% in the past year, compared to 5.52% of the IMA Equity Emerging Markets index, according to FE Analytics.
