The manager has added positions in the GAM Star China and Delaware Emerging Markets funds, while indirect exposure to the Chinese economy comes from the DB X-Trackers Stoxx Europe 600 Basic Resources exchange traded fund (ETF).Lanning says many emerging market economies face considerable headwinds and valuations at the wider market level are not very compelling but opportunity persists for stock picking.
“Emerging markets continued to benefit from notable inflows as the economic data continued to surprise to the upside,” he said.
“Given the valuation and growth dispersion at both a country and sector level there remains a strong case for owning active stock pickers in the region.”
Source: JP Morgan
The $2bn Delaware Emerging Markets fund is an institutional fund and it is hard to find a similar portfolio available to retail investors.
It has returned 0.53 per cent since the sell-off last year compared to a fall of 4.25 per cent in the MSCI Emerging Markets and an average loss of 7.26 per cent in the FO Equity Emerging Markets sector.
Performance of fund, sector and benchmark since 22 May 2013
Source: FE Analytics
The fund has exposure across a diverse spread of emerging market economies including Latin and Central America and the Middle East and North Africa although its largest bet is on Asia Pacific equities.
Lanning is also keen on direct holdings in China, which he says is showing positive signs of responding to recent government stimulus, while earnings momentum has turned positive.
He has bought the GAM Star China fund for exposure here.
“Investors are being forced to address their heavy underweight to the region,” he said.
Over the past three years the fund has made more than double the return of the IMA China/Greater China sector average.
Performance of fund and sector over 3yrs
Source: FE Analytics
The $2.2bn portfolio is heavily overweight information technology and consumer stocks, having 9.7 per cent in Chinese eBay equivalent Tencent, its largest holding.
It is also overweight financials with 21.89 per cent in names such as Bank of China and China Merchants Bank.
It has an annual management charge of 0.85 per cent and it is available on a number of UK platforms.
Emerging markets have fallen heavily over the past year since the Federal Reserve hinted it would taper its monthly stimulus programme in May 2013, causing a sell-off.
Both the initial suggestion that the Fed would reduce QE in May 2013 and its implementation of this decision in January 2014 caused a sell-off in emerging markets.
Lanning says he has bought the DB X-Trackers Stoxx Europe 600 Basic Resources ETF as improved sentiment toward China and decent production reports from the mining majors led to basic materials being the strongest sector in July.
“Mining remains an unloved sector with a strong corporate restructuring story, we remain overweight.”
While developed markets have recovered, emerging markets are still down since last year’s falls.
The MSCI Emerging markets index is still down 4.71 per cent while the S&P 500 and FTE All Share have gained 7.88 and 2.84 per cent since the sell-off.
Performance of indices since 22 May 2013
Source: FE Analytics
JPM’s Fusion range spans five risk-rated funds investing in both active and passive funds across asset classes and with a wide geographical spread.
The range of Fusion funds has an exposure to equities between 45 percent and 100 per cent.
Its highest risk-rated Growth Plus fund has outperformed its IMA Flexible sector average since its launch in April 2013, returning 6.2 per cent compared to 5.02 per cent.
The fund also has a high conviction play on US equities fund with an allocation of over 40 per cent through active managers.
“It is often observed that active managers in the US find it difficult to consistently beat benchmarks and that as a result investors would be better off simply buying passive funds instead,” Lanning said.
“In truth, the first half of the year has been more challenging but we believe the macro back drop remains supportive. Many of the surveys for business spending and orders for capital goods look positive.”
“Whilst investors are poised for the start of a rate tightening cycle we expect the Federal Reserve to remain dovish and for interest rates around the world to stay at historically low levels. Much has been made of the poor weather at the start of the year in the US and its impact on data which we expect to show material improvement.”
