Six top investment trusts
1 Templeton Emerging Markets (TEM)
Mobius is confident that emerging markets will continue to grow rapidly as burgeoning money supply seeks an investment home.
The fund is 20% invested in Brazil and in China, but Mobius is also excited about the new 'frontier' markets, such as Romania, Vietnam, Nigeria and Kenya and has exposure to them in the trust. (www.franklintempleton.co.uk/temit)
2 Genesis Emerging Markets (GSS)
Little-known Genesis Emerging Markets Trust was set up as a research- driven stockpicker in 1989 by four founding members, and has always selected analysts with first-hand experience of working in a developing country.
The trust has consistently good long-term performance and has been overweight in the Middle East and north Africa. From a sector perspective, it is currently 24% invested in financials and 13.2% in energy. (www.giml.co.uk)
3 VinaCapital Vietnam Opportunity (VOF)
AIM-listed VinaCapital Vietnam Opportunity Trust, is run by the $2 billion VinaCapital Group, which has deep experience of Vietnam, Asia's second-fastest growing economy for the past decade. The nation's GDP per capita has tripled since 1999, from $375 to $1,040 in 2008, and private consumption forms the GDP bedrock at 65%.
"Vietnam has soaring investment inflows from overseas and a strong export market," says managing director Stacy Kincaid. "It is stable politically. The Communist party even discloses its budgets to the public." (www.vinacapital.com)
4 Aberdeen Emerging Markets
The £700 million, S&P AA-rated fund is managed by Aberdeen's 36-strong global emerging markets team, which includes the respected Devan Kaloo and Hugh Young. The team follows a bottom-up process based on company visits and a conservative approach to valuation and company earnings prospects.
The emphasis is on traditional buy-and-hold, with top-slicing and topping up holdings preferred to outright trades, which results in low turnover.
There is less bias towards cyclical companies and this makes it harder for the fund to outperform when cyclical or low-quality companies are doing well but provides defensiveness in more difficult environments.
The fund consistently appears in the upper quartile of performance tables and has gained 50% in the past six months. The minimum investment is £500. (www.aberdeen-asset.com/GEM)
5 Parworld Emerging Step 80
Sigma Management Group specialises in structured products and this Luxembourg-registered fund uses derivatives to maximise exposure to markets while minimising the risk of a decrease in the sub-fund's price.
The targeted participation in emerging markets exceeds 50% in bullish phases and decreases significantly in bearish phases. Its launch in January 2008 was unfortunately timed, but for the period to 15 September 2009 it rose 16% compared with a loss of 26% for the benchmark.
"An investor can access equities in emerging markets in the traditional way or they can buy funds, but they won't get the same reactivity as they would buying options on one of the huge emerging market trackers, as we do in the management of the fund," says Jean-Philippe Olivier, head of Sigma Solutions.
The minimum investment is only one unit, currently priced at 117 euros (£108) (www.am.bnpparibas.co.uk)
6 M&G Global Emerging Markets
This fund, which is up 65% in the past six months, aims to exploit emerging markets' inefficiency at valuing companies with changing fortunes. It takes a long-term approach, with a typical holding period of three years.
"We believe that value creation by companies, rather than economic growth, is what drives share prices over the long term," says co-manager Michael Godfrey.
"What is more, the shift in capital towards high-return businesses and away from low-return businesses - the source of significant shareholder value creation in the US - has only just got underway in emerging markets. Developing countries therefore offer a broad range of exciting opportunities."
The fund is concentrated in just 67 shares and heavily weighted to Brazil (15%), Mexico (10%), South Africa (8.5%) and Korea (8.3%).
This article was originally published in Money Observer - Moneywise's sister publication - in November 2009
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
Structured products offer returns based on the performance of underlying investments. Many products are linked to a stockmarket index such as the FTSE 100 or a “basket” of shares. There are generally two types of product, one offers income, the other growth and investors have to commit their capital for the prescribed term, usually three or five years. The investment is not guaranteed and if the index or basket of shares does not perform as expected over the term the investor might not get back all their capital.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.