Traditionally, more general emerging market funds have fared better than single-country funds. Our data shows JPM’s range of single-country Brazil, China, India and Russia funds lagging behind its general emerging markets offering since the JPM Brazil Equity fund launched in 2009.
Performance of funds since Dec-2009
Source: FE Analytics
However, Willis still believes investors with a strong conviction in a certain nation shouldn't dilute the potential returns on offer by using a multi-country fund.
"Because countries such as Brazil, China and Russia are all dominated by single sectors, they rise and fall differently in certain types of market. Russia, which is energy-led, typically does well in risk-on environments but falls quickly when investors become more cautious, while Brazil is commodities-led. China is trying to move away from a manufacturing and export-led economy to a more domestically focused one."
Willis says that timing exit and entry into the market becomes critical in this sort of situation.
"Someone who invests more regularly should see that when people become more risk-averse, for example they start to buy gilts, it is time to sell."
Edward Bland, head of research at Duncan Lawrie, agrees with Willis about the benefits of a more focused approach to emerging markets investment, and is particularly keen on India at the moment. However, he warns that investors need to do their homework if they are going to put all their eggs in one basket.
"Once you have a conviction in a certain country, you have to make sure the basics, such as infrastructure, are in place to support economic growth."
"Other risks to consider are economic ones such as inflation, corporate governance and corruption. Liquidity is also a concern – when markets fall it can be difficult to pull your money out."
"Also, in the smaller emerging nations, if many large foreign investors take fright and decide to leave the market at the same time – and the herd mentality means this is often the case – there can be dramatic falls in the value of the local currency."
Philip Haden, director at McCarthy Taylor, agrees that the devaluation of local currencies is one of the biggest risks involved with investing in individual countries, and is one that many inexperienced investors may overlook. He used Zimbabwe’s experience in 2008 to illustrate his point.
"In 2008, the African nation had the highest inflation in the world, estimated at 165,000 per cent a year and rising. The Zimbabwe dollar could therefore buy very little so the government decided to devalue it by knocking off 13 of its 17 zeros, effectively making the exchange rate 6,000 to one US dollar."
FE Analytics data shows that offshore trust Imara Zimbabwe had made 97.46 per cent between its launch in February 2007 and the peak of the inflation on 28 September 2008, but within four months it had lost 75 per cent of its peak value.
Performance of trust since launch
Source: FE Analytics