Emerging Markets and Commodities

SteveSilva

Some of you may be familiar with my previous posts, I have just opened up a S&S ISA with H&L and have started with a HSBC 250 FTSE tracker. I want to get into Emerging Markets and Commodities as I see potential for long term growth (thinking at least ten years).
However I am not certain which way I should go. General consensus seems to be that trackers are best but I'm not so sure if that applies to specialist markets like these. Also I'm not so sure which Unit Trusts or OEICs are passive and which are managed as there doesn't seem to be any clear indication on the summary pages
I have looked at JPM Natural resources and Aberdeen Emerging markets.
Any advice and opinions appreciated???

Aegis

SteveSilva wrote: »

Some of you may be familiar with my previous posts, I have just opened up a S&S ISA with H&L and have started with a HSBC 250 FTSE tracker. I want to get into Emerging Markets and Commodities as I see potential for long term growth (thinking at least ten years).
However I am not certain which way I should go. General consensus seems to be that trackers are best but I'm not so sure if that applies to specialist markets like these. Also I'm not so sure which Unit Trusts or OEICs are passive and which are managed as there doesn't seem to be any clear indication on the summary pages
I have looked at JPM Natural resources and Aberdeen Emerging markets.
Any advice and opinions appreciated???

Both of those funds are in my portfolio and seem to be doing quite well.

atush

I will say I am keen on both areas, but as live offshore I don't have ISA's. So I invest directly/low cost, or in Inv Trust Savings plans.

I sold half my gold, but am still invested in oil/gold. I have made loads in Eastern Europe (ie Eastern Europe Inv Trust) and AA smaller companies and other emerging markets. In these, I was/am invested over 5 yrs, under 10 yrs. Am considering India and Brasil/Latin A. but thoses are only smaller fish in my overall portfolio- despite the huge profits by percentage.

My point is, let yourself run free on some investments, but make them a proportion of your overall investments. And be sure you are happy losing that cash (or at least a proportion like 50%).

Linton

I too hold both funds and am delighted with what they have done for me over an extended time period, for example the Nat Res fund has returned 25% annually for 8 years.

With those sorts of returns worries about the odd 1% of TERs really are irrelevent. In any case these sorts of funds would not have a meaningful tracker equivalent as there are a great variety of Resources that a fund could invest in, and there isnt a standard global index that could possibly encompass this.

On the Emerging Market side, again the choice of which markets to invest in cant be encapsulated in an index - different EM funds major on different areas, Aberdeen likes Latin America, First State likes the Far East.

An Emerging Market Tracker I guess would be forced to hold much of its investments in Russian Oil companies, these being the largest companies in the EM arena. Perhaps Russian Oil isnt quite what you had in mind when you said you wanted to invest in EM.

If you believe that Nat Res and EM are going to do well (or better than say the FTSE100) over the next 10 years then Aberdeen EM and JPMF Nat Res are the sort of funds you should go for.

To answer 12tonelizzie; resources in general have suffered a set-back during the past 6 months, naturally a Resources fund will reflect that. Whether it's a tracker or not is irrelevent, like all investment decisions the key one is what sector you invest in. Which funds you use to implement that decision is very much a secondary concern.

masonic

12tonelizzie wrote: »

As an index investor by default, then, I've gone for L&G Global Emerging Markets Index, which is fairly new. Over a paltry 6 months (the longest I can plot them on H-L), Aberdeen has outperformed the L&G Index, but JPM Natural Resources has considerably underperformed both.

As an approximation, you can use the Global Emerging Markets sector average to get a feel for the longer term performance likely for the L&G index fund. I think a strong case can be made for going managed for emerging markets.

Reaper

masonic wrote: »

As an approximation, you can use the Global Emerging Markets sector average to get a feel for the longer term performance likely for the L&G index fund. I think a strong case can be made for going managed for emerging markets.

I would agree which is why I have long been puzzled by what the generally reliable Candid Money says:

In theory active managers are likely to have greater success in smaller, less efficient, markets such as smaller companies and developing economies, so the argument for trackers in these markets is less clear cut. While this just about seems to hold true for smaller companies, many emerging markets active managers do underperform so the case for active management here is less convincing.

That does not sound right to me - personally I use Aberdeen Emerging Markets and their performance is consistently above the benchmark as you can see here (change the timescale to "Since Launch" for the full picture):
http://www.trustnet.com/Tools/Charting.aspx?typeCode=FAFEMA,XO:GLBLEMER
Based on that I am happy to pay the extra fees for a well managed fund.

SteveSilva

Linton,

Yes that makes sense if you invest in certain funds then you are not only investing in emerging markets but also different sectors/countries within that index so if one area doesn't do well it can be balanced out by another.
Incidently why did you pick the First State fund as I was looking at that too?

cloud_dog

In the SIPP I used to hold seperate fiunds in Latin America, Russia, India, China but I have decided to pool those investments in to a couple of BRIC funds and allow the managers to weight the investment areas as they see fit.

Time will tell how it goes.

blinko

12tonelizzie wrote: »

Thanks, I'm happy to learn from those more experienced. I was just telling the OP, who raised the issue of trackers, that at least one tracker is there. Re Russian oil, the L&G is 15% oil and 12% emerging Europe.



I imagine so, though the OP (who doesn't sound vastly more experienced than me) might want to read the FT Guide to Investing's chapter on funds, which stresses repeatedly the risk of compounded losses due to AMCs and concludes by generally recommending trackers for small investors.

Having chosen a sector, with my current low degree of expertise and experience, I can either choose whatever H-L are banging on about this week, or follow the tipsters here, or look at past performance and pray it continues, or find a tracker. Until my expertise and experience grow, which I trust they will, I'm generally favouring trackers.

whatever you do don't choose what they are recommending until you have researched it yourself. that includes recommendations on here.

I made a mistake of not researching properly an Africa fund by investec, i picked another one which i was very happy with JPM Africa.

during a month when everything was going up JPM africa gave me about 6% return, investec 3% not bad, 2 months later JPM africa 20% up investec 4%,

the investec fund wasn't beating the index and hadn't for a fair while in the past. Now its generally my first indication on resarch.

Has the fund beaten or at least remaind close to the index...

Good luck

gozomark

I used to be a fund manager in emerging markets (for 15 years) - I would go tracker over managed

Ark_Welder

Index funds are not without their risks, so as much research of ones of interest should be done as if a managed fund was being selected.

The FTSE 100 has 50% concentrated in around 15 companies, and is currently skewed towards Financials (20%), Oil & Gas (20%) and Basic Materials (15%). So there is a concentration of risk the types of companies and the spread of companies. (In late 1999, early 2000, Vodafone alone formed around 15% of the FTSE 100 and between 10%-12% of the All Share) (All on total market cap figures rather than free-float)

So 'the FTSE 100 market' is largely influenced by a small number of companies, so does trying to beat this particular market actually mean anything? For me personally, the answer is 'no'.

A tracker may not perform as well as managed funds: Japan was like this - even when it was still rising in the late 1980's before its subsequent problems. There used to be index funds that tracked UK smaller indices too [any left?], but that majority of managed funds easily outperformed due to the illiquid trading nature of some of the companies and due to others being failed larger companies and on their way down - a managed fund can avoid these, a tracker cannot.

Thinking about bond fund trackers? Well, a bond is a debt, so if a government or company increases its amout of debt then an index tracker would be compelled to buy it - not necessarily a reduction in risk!

Index tracker tend to perform satisfactorily when the index consists of a fair sized number of liquid elements that are well researched - such as the S&P 500 and possibly the FTSE 250 (top 15 companies = 14%, top 70 = 50%). Managed funds tend to perform better when the underlying assets assets are illiquid or under-researched.

Just remember that just because an asset or asset class or geographic region has performed well, it does not mean that it will continue to perform well. And vice versa too.