Emerging Markets exposure

Voyager2002

puzzledinvestor wrote: »

While the idea to chose which individual countries to invest in can be good in some cases, I'm not sure it can be used as a general advice. Obviously India, as well as many other EM countries have great long term prospects, but that does not necessarily translate into them being the best investment opportunity.

Unless you have very detailed knowledge, I would feel more comfortable choosing a more generalist EM fund (or at least e.g. Asia Pacific one), where the manager is able to perform a country allocation himself. Of course there's no guarantee that he'll get it right, but if you're trusting him your money, you assume he's more likely to do it than yourself.

But if you're interested in investing directly in India, I think there are at least a couple of investment trust, and probably a few OEIC (I think both Aberdeen and First State have, and they are supposed to be quite well considered in general, but I don't have any information regarding their indian funds). You can search and compare data from different funds in morningstar or trustnet, and have a look at their factsheets, holdings, etc...

Your approach does not get around the problem that someone managing investments in several different countries might not be sufficiently aware of what is going on in each particular place to spot opportunities or avoid problems.

A good start might be to look at a strong generalist EM fund and see the proportion of the fund that goes into each country. Then divide your pot in similar proportions between funds specialising in each of the countries in question.

The weak point of this is that different sectors within a particular country offer completely different risks and opportunities: I would feel very differently about investing in Chinese real estate than in Chinese consumer products, for instance.

Porcupine

Voyager2002 wrote: »

A good start might be to look at a strong generalist EM fund and see the proportion of the fund that goes into each country. Then divide your pot in similar proportions between funds specialising in each of the countries in question.

This seems like a lot of effort trying to second-guess the manager. I would hope (but it could be a vain hope) that any decent EM fund would have country-specific analysts who say things like 'good opportunity in minerals, don't touch property' which will feed into the manager's decisions. If you take a snapshot of the fund at any one time, it will be fixed at that point. The manager of the generalist EM fund has the ability to switch about countries based on prevailing conditions, while your snapshot won't. So unless you try and run your own tracker by regularly trading to keep up with the general EM fund you're going to become out of date.

Since the TER on the general fund isn't significantly different from the TER on single-country funds, you don't save any charges by doing all this work either.

Of course, if you think you know more about a market than the manager then you probably ought to be trading yourself and not using a fund anyway.

puzzledinvestor

Not much to add to Porcupine's post.
If you think you can do a better job than the fund manager, there's no point in paying him 1-1.5% per year.

But I guess most investors (including myself) do not have a deep knowledge of the particular problems affecting say Indonesia, Thailand or Vietnam, so they are most likely better off investing through a more general fund or an ETF if they don't think the manager is able to add enough to compensate for his fees. Otherwise, it's little more than a gamble choosing a single country fund.

Back to India, it can perfectly be a great investment, but for example in 2011 the Indian index lost over 35%. Short term problems can have a bigger impact on returns than longer term prospects, and even in a longer term this can be also true: stock market returns are not necessarily correlated to e.g. GDP growth.