Newton Global Emerging Markets and Invesco Perpetual Global Emerging Markets are the active funds IBOSS Asset Management’s Chris Metcalfe is using alongside an emerging market tracker for exposure to the asset class.
The IBOSS investment director remains positive on the prospects for emerging markets, having held an overweight position for two years.
As the below chart shows, the MSCI Emerging Market index has outperformed the broad MSCI World index by 9.76 percentage points over the past two years.
Performance of indices over 2yrs
Source: FE Analytics
Metcalfe said: “If you take global emerging markets we are overweight and have been for the last two years because generally speaking – though it is difficult to generalise over a massive area like that – you have better demographics and better growth outlooks.”
As well as this, he noted that many of the issues that have previously hampered the global emerging markets are no longer relevant.
“One of the reasons you would have been perhaps wary of the emerging markets would have been the dollar strength but [president Donald] Trump has done a great job of getting rid of any dollar strength,” he said.
Indeed, a strong dollar is perceived to have a “detrimental effect on emerging markets” as much of the debt from companies in these countries is dollar-denominated and therefore a lower valuation reduces the repayments in local currency terms.
“The other point is suppose is the political instability and I would argue that America right now has more political instability than many of the global emerging markets,” Metcalfe added.
“So some of the classic potential headwinds to investing in emerging markets I think are not currently there and we have gone into those markets.”
Having previously looked at the cautious positioning the manager is taking, and the funds he is using for this, below FE Trustnet looks at the funds Metcalfe is using for his exposure to the slightly riskier emerging markets.
Newton Global Emerging Markets
The first fund backed by Metcalfe is the five crown-rated Newton Global Emerging Markets managed by Rob Marshall-Lee.
The £115m fund has been a top quartile performer over the past three years and since the manager took charge in 2013 has been the fifth best performer in the IA Global Emerging Markets sector.
Performance of fund vs sector and benchmark since manager start
Source: FE Analytics
As the above chart shows, the fund has returned 74.98 per cent since Marshall-Lee took charge, and has also been a top quartile performer so far this year returning 24.03 per cent, following a bottom quartile performance in 2016.
“They’re overweight India and even though it already looks expensive they’ve stayed in it and that has paid dividends,” Metcalfe said.
“On the active managers we use, at the end of the day we are paying them for their expertise and for their track record,” he added.
“There are times when you need to trust the manager as they may be buying stuff that looks expensive but it is their call at the end of the day. If they still think there is mileage in India then go into India.”
The fund has 30.4 per cent of its portfolio invested in India, 22.8 per cent in China and 10.8 per cent in South Africa. On a sector level, the fund’s biggest exposure is to technology stocks representing 27.7 per cent of the portfolio.
The fund, has a yield of 0.47 per cent and a clean ongoing charges figure (OCF) of 0.95 per cent.
Invesco Perpetual Global Emerging Markets
Metcalfe’s second choice is the four crown-rated Invesco Perpetual Global Emerging Markets run by Dean Newman.
The long-tenured manager has been in charge of the fund since its launch in 2007, and has been a top quartile performer over three, five and 10 years.
As the below chart shows, the fund has outperformed the MSCI Emerging Market index and IA Global Emerging Markets sector by 18.31 and 31.45 percentage points respectively.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The fund focuses on stock selection rather than sector or country biases, which Metcalfe said gives it a “very active” approach.
With an emphasis on valuation, Newman is currently finding the Europe, Middle East and Africa region particularly interesting, according to the fund’s latest factsheet, because it offers a “wide range of diversified companies with strong management teams operating in areas of growth”.
The £363.7m fund has a bias to the information technology sector representing 30.16 per cent of the portfolio. Conglomerate Samsung Electronics (6.9 per cent), media company Naspers (4.85 per cent) and e-commerce specialist Alibaba (4.39 per cent) make up its top three holdings.
The fund has an OCF of 1 per cent and currently yields 0.99 per cent.
L&G Global Emerging Markets Index
The final fund Metcalfe has chosen to gain exposure to developing markets is the three FE Passive Crown-rated vehicle L&G Global Emerging Markets Index.
The £806.9m fund tracks the FTSE All-World Emerging index and since launch has returned 31.68 per cent versus the benchmark’s 38.7 per cent.
Performance of fund vs benchmark since launch
Source: FE Analytics
Since launch, the passive fund has a tracking error compared to its benchmark of 2.36. (A zero tracking error would indicate a fund was a perfect replication of a benchmark. This would of course be impossible due to fees and the fact funds will not be fully-invested at all times in order to maintain liquidity).
The offering from Legal & General Investment Management also has an OCF of 0.33 per cent and a yield of 1.9 per cent.
“What the fund does for us – as well as helping to control the OCF – is it gives you that broader coverage,” Metcalfe said.
“So, there are certain days when the tracker outperforms, it helps with the overall volatility.
“The combination of those very high conviction funds – Invesco Perpetual and Newton – and then your very broad index-based tracker gives a good cost-effective coverage but with a high active share overall.”