Six of the best emerging market opportunities

Published by Ceri Jones on 10 November 2009.
Last updated on 25 August 2011

Six spices


1. Templeton Emerging Markets (TEM)

At £1.5 billion, Templeton Emerging Markets Investment Trust (TEM) is the largest specialist trust by some margin and has been managed since its launch in 1987 by Dr Mark Mobius.

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.

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.

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."


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.

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 EURO 117 (£108).

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

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