Although a number of industry experts recently told FE Trustnet that investors could well lose money over the next sixth months by buying emerging markets equities, Wilson – manager of the five crown-rated Newton Managed Income fund – disagrees.
Emerging markets have underperformed the wider global equity index in recent months, and Wilson has used this as an opportunity to increase his exposure to the sector. He adds that sentiment will undoubtedly turn more upbeat in the short-term.
"I am not afraid to take large positions that others may perceive as risky if I feel there is good value. One of my most recent decisions has been to go overweight, relative to my peer group, in emerging markets and Asia," he said.
"They have underperformed for so long, but you can still get a good level of income. Those economies have low debt and much higher growth rates compared with the western world and though that growth has been disappointing recently, there is a lot of value there."
"I hear more and more market commentators talking about this issue, but I think by the end of the year, and with the benefit of hindsight, people will look at the returns of emerging markets and will say 'I wish we invested in them earlier'," he added.
Emerging market equities have been one of the major talking points of 2013.
It has certainly been a tough area to invest in recently: according to FE Analytics the MSCI Emerging Markets index has returned just 5.96 per cent over three years, underperforming against the wider MSCI AC World index by more than 30 percentage points.
Performance of indices over 3yrs
Source: FE Analytics
That underperformance has been compounded recently as fears surrounding growth in emerging economies and country-specific issues such as the concerns over China’s shadow banking system have gathered momentum.
However, like his fellow FE Alpha Manager Toby Ricketts, Wilson has been buying emerging market equities in the recent dip. He is bullish on their outlook because he feels the general market will become more optimistic over the coming months as the world economy strengthens.
He says that negativity towards the sector has been slightly overdone and that during his lengthy career as a fund manager there have been many instances where investors have over-reacted. As he puts it: "For every 20 events the market becomes jittery about, only one ever matters."
"Chinese growth has slowed recently. However, it is a centrally placed economy so in all honesty the government will do what it has to do to sort that out, as it doesn’t want a restless population," Wilson said.
"There has been an issue about over-production and excess stock in the emerging markets; however we are seeing that growth in Europe and the UK is stabilising as it has turned from weak to neutral. In the US, the economy is looking more dynamic."
He says that a strengthening recovery in the developed economies will cause demand for goods from emerging markets to increase.
Wilson also says that when the market becomes more optimistic about economic growth then investors will be more prepared to dip back into riskier assets such as the emerging markets.
"The recovery in the US, Europe and the UK doesn’t appear to be that broad and people are still sceptical. But, give it another quarter and I think sentiment could turn more positive, which will be good news for the emerging markets," he said.
Wilson has managed the £152.8m Newton Managed Income fund since its launch in March 2008. Over that time it has returned 50.5 per cent, putting it in the top quartile of the IMA Mixed Investment 20%-60% Shares sector.
Performance of fund vs sector since Mar 2008
Source: FE Analytics
Wilson’s fund also boasts top-quartile returns over three and five years.
As FE Trustnet recently pointed out, Newton Managed Income is a fettered fund of funds – meaning Wilson can only invest in other funds that are managed by Newton.
On top of that, Wilson says he will only invest in portfolios that can give him a decent level of income to distribute to his unit holders.
"I’m very much aware that there are people who put money into this product and who are looking forward to a quarterly dividend cheque. A lot of them are quite reliant on that income because they are retired or close to retirement," he said.
Wilson says that because of that dependency on income – his fund currently yields in excess of 4.7 per cent – he is unlikely to have any great exposure to the US or Japan, where there is not much of a dividend culture.
However, he says that the emerging markets are a good place to be for income-seeking investors as well as those looking for value. Because of that, he uses the Newton Asian Income and Newton Emerging Income funds within his portfolio.
Both of those funds are managed by Jason Pidcock and offer their investors an attractive level of income. For instance, Newton Asian Income has a yield of 4.7 per cent while Newton Emerging Income has a yield of 3.7 per cent.
Newton Managed Income has an ongoing charges figure (OCF) of 1.4 per cent and requires a minimum investment of £1,000.
