Comments from the Fed about QE tapering, along with concerns over China’s credit system, have brought about high levels of negative sentiment towards Asia, while the likes of Brazil and Turkey have been hit by social unrest and political infighting.
Ricketts (pictured), who manages a number of funds of funds at Margetts, sees the recent dip in markets as a buying opportunity in both the short- and long-term.
He says investors need to stop being "blown about" by changing sentiment and urges them to remember that company fundamentals are the long-term drivers of stock market performance. He adds that the severity of negative sentiment has to switch before long, sending prices upward.
"We were slightly taken aback by the scale of the sell-off in the emerging markets and Asia," he said.
"These were brought on by concerns over China’s financial system, which were justified. But I think those concerns are now priced in and they offer the best value in the market. We upped our exposure even though we are already slightly overweight."
"I do think emerging market funds will be the best performers by the end of the year, especially the high yielders like UBS Emerging Markets Equity Income and Somerset Emerging Markets Dividend Growth."
Ricketts holds 18 funds in his Margetts Venture Strategy portfolio, 10 of which have a specific focus on emerging markets. Such a high weighting has resulted in the fund underperforming so far this year, as one would expect.
The fund has managed 8.75 per cent so far this year, but this is less than its sector average. As the graph shows, returns dropped off in the aftermath of Bernanke’s "tapering" comments on 22 May.
Performance of fund vs sector year to date
Source: FE Analytics
Ricketts has used the dip in the market to add to his existing holdings in Newton Asian Income, UBS Emerging Markets Equity Income and Somerset Emerging Markets Dividend Growth.
He says that these funds' outperformance may not start immediately and adds that a rebound is a matter of "if" – not "when".
"Negativity towards global emerging markets has gone too far, but it could always go further," he said.
"For instance, our performance in 2011 was poor because we were well positioned for 2012. Our heavy weighting to GEMs and Asia Pacific is hurting us at the moment, but we are confident they will make us the most money."
"We are seeing that a lot of these businesses already have good earnings and those earnings are growing. Plus they are improving issues over fraud and general corporate governance."
"The key difference now is that these economies are now low in debt. The US, UK, and Japan have been the best performers recently and they have got high levels of debt. The finance cost of that has been low, but as we are in an environment where interest rates will increase, the cost of that debt will become more expensive."
"That will impact their performance, but with emerging markets, you have strong fundamentals and you are starting from a lower base."
Ricketts says he is frustrated by the extent to which political intervention is shaping markets, but remains confident fundamentals will eventually win out.
"I’m getting pretty fed up with policy makers driving market movements by what they say," he said. "Bernanke only has to say something and either 5 per cent is added to the market or 5 per cent is wiped off."
"It shouldn’t be sentiment driving the markets, it should be fundamentals. These ridiculous short-term movements show just how nervous people are and this big herd mentality shows that there are very few people that are willing to work out where markets are going," he added.
Ricketts has managed the £84m Margetts Venture Strategy fund since its launch in January 1995.
Our data shows that it is the second-best performing portfolio in the IMA Flexible Investment sector over 10 years, with returns of 196.92 per cent. It has beaten the returns of the average fund in the sector by more than 90 percentage points.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Margetts Venture Strategy requires a minimum investment £1,000 and has an ongoing charges figure (OCF) of 2.66 per cent.
Although Ricketts says negativity towards the emerging markets has fallen too far, he says the popularity of UK large caps is concerning.
"I’m just a bit concerned over the 'bondification' of the large cap market," he said. "People have been buying those stocks because they are seen as a bond-proxy, which has meant that they are now very overvalued I am less confident larger stocks will outperform."
"I am positive about Ardevora UK Income, though. It is run by Jeremy Lang who had a good long term track record at Liontrust, but had a poor couple of years at the end of his time there. I think it has potential to do well because it has a concentrated portfolio and he predominantly focuses on the lower end of the market."
Ardevora UK Income was launched in January 2011.
Over that time it has been the fifth-best performing fund in the IMA UK Equity Income sector, with returns of 41.78 per cent and nearly doubled the returns of its benchmark – the FTSE All Share – in the process.
Performance of fund vs sector and index since Jan 2011
Source: FE Analytics
The fund has a yield of 4.12 per cent, requires a minimum investment of £5,000 and has an OCF of 1.56 per cent.
