Emerging Markets

TCA

I'm looking at sticking around £3k into my Friends Life pension before the end of the tax year and thinking about Emerging Markets. The rest of my pension is all medium risk FL Balanced Index Enhanced Fund of Funds: http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=LRF96&univ=P , so I'd like to diversify and not scared to take a bit of a punt.

I fancy the aforementioned FL First State Global Emerging Markets Leader. My only other option of that nature (within the available choices of my former works pension) include FL JPM Life All-Emerging Markets Equity, which doesn't look that good. I'm also considering something commodities related but my only option is FL JPM Natural Resources, which doesn't appear that highly ranked. The final consideration for me is FL First State Asia Pacific Leaders but I am slightly put off by the fund managers (Angus Tulloch) review at the end of January:

"Outlook: Worryingly, policy makers appear to be recreating the conditions of 1999 and 2007 which both ended in disaster for equity investors. We can only speculate what the result will be this time but it could be worse than what was experienced in 2000 and 2008. The conditions for a bubble are in place with the money printed in the West chasing expensive listed companies in the Asia Pacific, as much for perceived currency gains as for sustainable profit growth. Inflation is rearing its head across the region and we expect further monetary tightening over the coming months. Against this backdrop we are likely to continue to err on the side of caution, seeking out businesses with robust managements, strong cash flows and ‘price-giving’ characteristics. We are likely to maintain a significant exposure to companies involved with clean energy and energy efficiency, areas which we believe have strong fundamental growth prospects."

This is the review from 31st January from Jonathan Asante, the First State Global Emerging Markets Leader fund manager:

"Outlook: As consumer companies in GEM become overly favoured we are moving into less popular areas such as Telecommunications and the best run Technology companies. It is more important than ever not to sacrifice quality for valuation given how risky things are becoming. Some GEM markets and stocks are now entering bubble territory, perhaps the inevitable result of highly accommodative global monetary policy. Against this backdrop we are becoming more cautious, homing in on companies with strong cash flows and robust ‘price-giving’ franchises. The valuation discount of developed vis-à-vis GEM markets means that many companies in the former – particularly those with heavy exposure to emerging markets – may merit attention."

Any thoughts on all that?

Ark_Welder

sorcerer wrote: »

OK I was thinking of this one, First State Global Emerging Mkt Leaders, I did want to use Aberdeen Emerging Markets, because I have that in my ISA and didn't want to be overexposed too much to one fund. Also it has a large % in Latin America, and I already have that covered, First State is a little more general.

What you're hitting is the problem of having a mix of global and regional funds. This can work OK if the global holding is quite large in comparison to the regional and you have a compelling reason to believe that one region will do better than others over the next few years, but it will hobble you if trying to diversy by fund manager/group but still at a global level.

Possible solutions are:
Get more regional funds instead of another global, e.g. Far East, emerging Europe. But then you have the problem of deciding and maintaining the individual weightings.
Get rid of the LatAm fund and go with just the global(s). (I am assuming that this is how you are already covering this region).
Accept that you will have a large weighting to latin america. This would depend upon why you chose to have additional exposure to this reason in the first place.

Aberdeen do have a strong team approach in this arena, and especially to the Far East where they have many years' experience. I'm not sure about whether FS take the same approach, although they have also had good performance in the Far East too.

If you have a natural resources fund then check its exposure to latin america because this might need to be factored in as too.

Ark_Welder

TCA wrote: »

Any thoughts on all that?

Angus Tulloch has a good many years' experience of investing in the Far East. If he is being cautious then it is not something to be dismissed.

The Far East is still largely dependent upon exports to other regions, so problems in the eurozone will have an impact there. Eurozone banks have also been quite active in providing credit to FE companies, so how this is replaced or unwound is also something of which to take note - assuming that eurozone banks are going to be reducing their overall level of lending.

dunstonh

Aberdeen Emerging Markets is about to soft close. So, whilst you shouldnt rush investing, the market leader is about to soft close it.

TCA

What does that mean dustonh, in layman's terms? Do Aberdeen just want to get out of Emerging Markets? Is that an indicator of things to come? Both Angus Tulloch and Jonathan Asante mention bubbles in their latest reports (quoted above), so I'm starting to wonder if EM is the right sector to take a punt in?

mr_fishbulb

TCA wrote: »

What does that mean dustonh, in layman's terms? Do Aberdeen just want to get out of Emerging Markets? Is that an indicator of things to come? Both Angus Tulloch and Jonathan Asante mention bubbles in their latest reports (quoted above), so I'm starting to wonder if EM is the right sector to take a punt in?

It means they will put up the cost of buying into the fund (if it's a Unit Trust then the spread will increase, if it's a OEIC then the initial cost will increase). The intention is to stop people pouring into it.

I'd say they are doing it because the fund has become so popular it's becoming difficult to manage. The fund needs to find places to keep putting all this incoming cash from new investors. Plus when the fund has a large holding in particular stock (although it may only be 1% of the fund, it could work out to a lot if there is a lot of money in the fund), it could run into liquidity issues when wanting to sell.

laughingboy

I have a regular contribution to Aberdeen EM fund through III, will the soft closure affect me?

Linton

I also hold Aberdeen and am happy with it.

One thing to bear in mind is that different funds seem to specialise in different regions. Aberdeen has been relatively heavily into South America, First State is more into the Far East.

Another factor when it comes to trackers, one that was mentioned in todays investors chronicle, is that trackers automatically predominately invest in the largest companies in a market. In EM these will tend to be banks, oil companies, and miners all of which are really global industries and will suffer or gain from global effects perhaps more than local econonic growth.

dunstonh

Regular payments are normally excluded from the soft close at the first stage. It is single premiums they look at. There are a number of actions they can take.

For example, Troy Trojan is soft closed. It set a minimum of £250k per investment and a 5% initial charge. However, they didnt include platforms in this. Just direct investments. That will slow the amounts down. They could move it to platforms next if they want to slow it down more. Then they could bring it to regulars if they wanted to do even more. Rarely does it get to that stage but you can see that they can phase actions in.

IronWolf

The soft closure thing might be why the Aberdeen EM price has gone up about 10% in the last month