Skip to the content

Gleeson tips two emerging markets funds

28 March 2014

Rob Gleeson says now is the time to snap up the Templeton Emerging Markets IT on a discount and explains why he has bought Newton Emerging Income.

By Jenna Voigt,

Features Editor, FE Trustnet

Investors should be considering buying back into emerging markets through investment trusts to take advantage of their discounts, according to Rob Gleeson, head of research at FE.

ALT_TAG Gleeson rarely buys or tips investment trusts, yet makes an exception in the case of Mark Mobius’ £1.66bn Templeton Emerging Markets Trust.

The trust is trading on a discount of 10.92 per cent, slightly wider than its one year average of 9.51 per cent. Gleeson says it is attractive at his level.

“On a long term view it’s a good time to buy into emerging markets because valuations have gone down so much. You’re not buying in at a peak where you have to wait year and years to get back there,” he said.

“If you can buy Mark Mobius’ investment trust on a discount, now would be a great time to buy,” he added.

Ewan Lovett-Turner, associate director at Numis Securities, also thinks now could be a rare opportunity to buy into the well-managed trust on the cheap.

“The trust is trading on nearly an 11 per cent discount. Discounts, when they get as wide as 10 per cent, value investors tend to start picking them up,” he said. “[10 per cent] can be a bit of a floor for discounts.”

Lovett-Turner says Mobius and his team have a lot of experience on the ground in emerging markets and a good-long term track record with their value approach, which he thinks could be especially well-suited now that emerging markets have sold off drastically.

“[The trust] gives you good, diversified exposure to the region,” he said.

Templeton Emerging Markets has delivered stellar performance relative to the MSCI Emerging Markets index over the last decade, picking up 296.14 per cent. The index made just 186.27 per cent over this period.

Performance of trust vs sector and index over 10yrs

ALT_TAG

Source: FE Analytics

However, as emerging markets have sold off in recent years, the trust’s performance has declined even further than the index. It shed nearly 20 per cent over both one and three years, according to FE Analytics.

Mobius is invested in a number of major companies throughout the emerging world, including Brazilian bank Banco Bradesco, Indonesian conglomerate Astra International and Asian retail company Dairy Farm International.

The largest sector weighting in the fund is to basic materials, while the Pacific Basin makes up the biggest regional weighting, at just over half the portfolio.


The trust has ongoing charges of 1.31 per cent.

Income stocks in Asia have come under criticism for being overbought recently, as Hermes’ Jonathan Pines and Somerset’s Edward Lam warned there was a bubble brewing in quality income-payers.

Gleeson says this very much looks like the case, so investors who still want exposure to the emerging world, but with an income bent, should now look to diversify their exposure through the entire emerging world.

He says he recently bought the Newton Emerging Income fund, headed up Asian equity income expert Jason Pidcock.

“About a third of the fund is the same as Newton Asian Income, and about two thirds is spread around the world,” he said.

Gleeson says he is confident in Newton’s team and ability to find quality, income-paying stocks around the world. The fund was only launched in October 2012, so it has not yet earned an FE Crown rating, but the fund has outperformed its peers and the index over its relatively short history.

Though it got off to a strong start, the fund has been hit by the emerging markets selloff. Since launch, it is down 2.77 per cent, though it hasn’t fallen as far as the IMA Global Emerging Markets sector or the FTSE All World Emerging index, which are down 3.34 per cent and 6.04 per cent, respectively.

Performance of fund vs sector and index since launch

ALT_TAG

Source: FE Analytics

It is just a fraction of the size of Pidcock’s flagship Newton Asian Income fund, with just £211.2m in assets under management. It has an attractive dividend yield of 4.54 per cent, so investors are effectively getting paid while they wait for emerging markets to rebound.

While Gleeson says he isn’t likely to buy back into the emerging market leaders of First State and Aberdeen, he thinks investors in these funds should hang on to their holdings.

Much like Templeton, Gleeson says First State and Aberdeen benefit from having men on the ground – which gives them an edge over fund houses which are investing in the large global companies in Asia and emerging markets from the comfort of their desks in London.

Both funds have had a difficult time over the last 12 months, though Aberdeen Emerging Markets Equity has suffered more than the First State Global Emerging Markets Leaders portfolio – down 16.48 per cent to First State’s 8.25 per cent loss.

However, both funds have smash the performance tables over the long-term. Over the last decade, Aberdeen Emerging Markets gained 296.89 per cent and First State Global Emerging Markets Leaders picked up 279.78 per cent.


The MSCI Emerging Markets index gained 188.16 per cent over the period, while the IMA Global Emerging Markets sector made even less, at 172.58 per cent.

Performance of funds vs sector and index over 10yrs

ALT_TAG

Source: FE Analytics

The question for long-term investors is can these emerging market giants do it again.

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.