The UK index has made just 0.8 per cent in 2014 and the MSCI World index up just 1.27 per cent, according to data from FE Analytics.
Performance of indices in 2014
Source: FE Analytics
Here fund managers from GAM and Swiss & Global share their ideas of out of the way sectors that could give your portfolio a kick.
African equities
Tommaso Bonanata (pictured), manager of the JB Africa Focus Fund, says that the African continent is seeing rising growth in consumer spending, meaning that its economies are more diversified than in the past.
“The size of sub-Saharan Africa’s economy more than tripled from 2000 to around $1.33 trillion in 2012, spurred by increased demand for its minerals and oil,” he said.
“It is important to understand that the African growth is not simply a matter of rising commodity prices.”
“With rising educational standards, the continent is structurally changing and increasingly taking advantage of new economic opportunities.”
“While economies such as Nigeria and Zambia are dominated by commodities, lower commodity prices could benefit consumption driven economies such as Kenya that are net importers of commodities.”
“The continent’s future growth will inevitably be driven by its consumer population. Combined consumer spending reached $860bn in 2008 and is forecast t to reach $1.4tn by 2020, creating exciting future investment opportunities.”
Data from FE Analytics shows that the MSCI FM Africa index has seen strong growth on a three year view but this came in the first two years of the period. The continent suffered following the emerging market sell-off of last spring and has yet to recover.
Performance of indices over 3yrs
Source: FE Analytics
Fidelity Emerging Markets is among the mainstream developing market funds to have significant weightings to the region, with 18.1 per cent of the fund in Africa.
JPM Emerging Markets, Newton Emerging Income and First State Global Emerging Markets Sustainability all have more than 10 per cent as well.
Emerging market bonds
Enzo Puntillo, head of fixed income at Swiss & Global Management suggests that there are attractive valuations in emerging market bonds following their sharp sell-off last year.
Performance of EM debt index over 2yrs
Source: FE Analytics
“The outlook for emerging market bonds is stabilising,” he said. “On a broader level there are still outflows in the asset class, but the indiscriminate selling of the so-called fragile five has created some very attractive buying opportunities for selective investors.”
“We, for instance, like Brazilian bonds in local currency, which achieve yields of up to 13 per cent. Interest levels have fallen by 70 to 80 basis points in recent months and the currency has appreciated slightly.”
“By contrast, caution is urged for Turkish government bonds in view of absent rebalancing and the forthcoming election at the end of the month.”
“Within the segment of hard-currency bonds we see opportunities in Indonesian government bonds.”
“Additionally many eastern European countries, which went through a strong rebalancing, are the biggest beneficiary of the European normalisation.”
Health
Last week FE Alpha Manager Mark Martin told FE Trustnet that healthcare and biotechnology would be a major source of success for investors in the coming years thanks to political and scientific trends.
The large cap pharma stocks in particular are very popular with professional fund managers, who see them as undervalued and strong self-help recovery stories.
Christophe Eggmann, fund manager of the JB Health Innovation Fund, highlights that the technology used in healthcare is going through a step-change.
“The health sector is at the beginning of a new product cycle and companies’ product pipelines are currently extremely robust, creating particularly attractive opportunities for investors,” he said.
“Recent developments in the treatment for hepatitis C demonstrate the extent to which this innovation can benefit investors.”
“Around four million people suffer from the illness in the USA and most do not even know they are infected.”
“Conventional treatment methods are only partially effective and involve strong side effects. New therapy approaches offer increased effectiveness and improved tolerance.”
“The ability to take new treatments orally enables patients to more easily integrate treatment into everyday life.”
“These new forms of treatment will also result in significantly lower costs for the healthcare system.”
“Companies that bring this type of innovation to market can expect high demand, immediate gains in market share and high pricing power.”
Luxury
The inequalities of wealth in the global economy are becoming a talking point for world political leaders.
Whatever the rights and wrongs of these increasing disparities, the rise of the super-rich is supporting the growth of luxury products. Many luxury brands are also doing very well out of the growing middle classes in Asia.
Scilla Huang Sun (pictured), fund manager of the JB Luxury Brands Fund, says that the industry is utilising new technology to boost its marketing capabilities. “Multichannel retail strategies are currently one of the big topics for luxury companies,” she said.
“Businesses are seeking to capitalise on the growth in digitally literate, social media savvy consumers who are looking for convenience and efficiency to complement their luxury experience.”
“This allows firms to align their offering across different geographies and increase availability, with major developments in e-commerce platforms helping to extend brands’ reach.”
“Digital and multimedia solutions are attracting the big spenders of tomorrow.”
Emerging market equities
Enrico Camera, manager of the long/short GAM Emerging Alpha fund, says that buying companies that operate in the consumer discretionary sectors such as luxury goods is one way to mke money from the battered emerging market region.
Data from FE Analytics shows that the MSCI EM Consumer Discretionary Index is up 7.78 per cent since January 2013 while the MSCI EM Consumer Staples index down 6.54 per cemt.
Performance of indices since Jan 2013
Source: FE Analytics
“There has been a definite emergence of companies profiting from ‘higher needs’ in the emerging markets,” he said.
“Consumer discretionary rather than consumer staples are one of our primary investment areas as individuals look to illustrate their social status through their purchases.”
“Great Wall Motor, China’s top SUV provider, is one such play. While general car sales are not demonstrating significant growth, the status now attached to owning an SUV in China has been a huge benefit to the company.”
“The growing gaming industry in Macau can be accessed through companies like Galaxy Entertainment, enabling investors to benefit from significant increases in disposable income across the Asia region.”
Our data shows that four of the five IMA funds with the most in the sector have outperformed the sector average over the past year.
They include Fidelity Emerging Markets and Hermes Global Emerging Markets, the two best performing funds over 12 months, which have 21.4 per cent and 19.4 per cent in consumer discretionaries respectively.
