Lodha: Asia’s boom has just begun
The Fidelity manager says it makes no sense to ignore countries in which GDP growth of 6 or 7 per cent is considered disappointing.
The Asian growth story has many more decades to run, according to FE Alpha Manager Amit Lodha
, who believes investing in equities backed by real assets is a sure-fire way of hedging against inflation.
"China is where the US was in 1941 in terms of GDP growth, and India in 1882," he said. "This shows the sort of potential for growth there is on offer."
"If you look at the number of airports in the US compared to China and India you can see long-term growth prospects are there for all to see. It will be a long growth process over the next 30 to 40 years."
The fact that a growth rate of six or seven per cent is considered disappointing demonstrates that emerging markets still offer the best chance of high returns.
China is moving to a more domestically focused economy, making consumer stocks more interesting than fixed investments, Lodha says, with gold, energy and diamonds particularly interesting.
He believes investing in equities backed by real assets is the best way to take advantage of emerging market growth while protecting against inflation, which he thinks will continue to haunt economies in the mid-term future.
"Real assets are anything you can touch and feel," he said, giving the example of oil and infrastructure. "They outperform when inflation rises."
However, Lodha believes the immediate outlook should be treated with caution and rising food prices are the fly in the ointment.
"They tend to be a tax on growth," he continued. "That said, growth in emerging markets has further to go longer-term."
Lodha has managed the offshore Fidelity Global Real Asset Securities
fund since 2009, and Fidelity opened a UK-domiciled version
in September last year. It sits in the IMA Global sector and has an emerging market bias.
Data from FE Analytics
shows that the offshore fund has returned 26 per cent since launch, outperforming its sector average by around 10 per cent. It has also beaten the MSCI India, MSCI China, MSCI Emerging Markets and MSCI Emerging Markets Materials indices.
Performance of fund since launch vs sector
Source: FE Analytics
Lodha says his strategy allows him to react to and take advantage of the changing prices of commodities. When the oil price is high he can invest in stocks that will do well off the back of that, such as oil companies for example, and when it falls he can invest in stocks such as airlines that will have reduced costs.
Lodha isn’t concerned about where the stock is domiciled, focusing on companies that make money even if, like Cairn energy, they are listed in the West. About 30 per cent of the fund is invested in developed markets as a result.
"The fund is truly global in its approach," he added.
Lodha likes gold miners exploring safe countries such as Australia and China, while he thinks automation is a key theme.
The average Chinese factory is only 30 per cent run by robots compared with 90 per cent in Japan, the manager says, and growing Chinese labour costs coupled with an aging population means that this proportion will rise.
As well as emerging markets, the manager is optimistic about US growth.
"Shale gas discoveries are driving down American energy costs and this is positive for the US economy as a whole," he explained.
Investors in the UK-domiciled fund will need an initial investment of £1,000 or a monthly contribution of £50. It currently only has £1m assets under management (AUM), whereas the offshore version has $246m.