Head of multi-asset investments David Coombs believes emerging markets valuations are now compelling enough to warrant a buy.
In his Rathbone Enhanced Growth Fund, Coombs has increased his emerging market holdings to 20% and is looking to increase this allocation another 5% over the coming days.
“We started to sell down those markets around September 2010, when valuations were looking rich, on a relative basis,” said Coombs. “But relative valuations are now more compelling, particularly for countries such as Indonesia, the Philippines and those in Eastern Europe.”
But he warned that emerging markets should still be treated with care.
“Investors risk being sidetracked by the problems in Europe and the US, and missing the improving relative valuations elsewhere,” he said. “But it’s also important to remember that if Western GDP growth does plummet, it could be painful, as these are still high beta markets.”
In July, Coombs announced details of the Rathbone Enhanced Growth portfolio that seeks to provide, on average, 2% above the returns from a combination of 70% MSCI World Index and 30% MSCI Emerging Markets index over the long term, with a volatility targeted to be 100% of equity volatility.
Explaining the choice of benchmark, he said at the time: “We believe that in ten years’ time, the weighting to emerging markets in the MSCI World Index will more closely match their share of global GDP than current stock market capitalisations. The International Monetary Fund is forecasting that emerging markets share of GDP could be as much as 51% by 2013.”
