High-growth regions your BRIC fund is missing out on

The performance of the single-country frontier funds mentioned below gives a glimpse of what investors in BRIC funds are missing out on.


Indonesia

Arjen Los, fund manager of the Dominion Chic fund, recently told FE Trustnet that Indonesia has many of the characteristics of China. Its young population of 250 million people makes it a consumer market with huge potential, for example.

There are three single-country Indonesian funds in the FSA offshore recognised universe, each with a strong track record.

BNP Paribas L1 Equity Indonesia Classic has returned 152.88 per cent over five years, while Fidelity Indonesia has returned 151.05 per cent.

The latter has gained a huge 515.46 per cent over a decade, while Allianz RCM Indonesia has returned 448.11 per cent over the same time-frame.

However, their volatility is, as one would expect, high, with both funds scoring around 30 per cent on an annualised basis.

Allianz requires an initial investment of at least $5,000, while Fidelity requires $2,500.


Malaysia

Another south-east Asian economy that has performed strongly in recent years, Malaysia has seen its FTSE Bursa Malaysia KLCI Index gain 122.47 per cent over the last decade.

Fidelity Malaysia has beaten that with a gain of 184.52 per cent, and also outperformed the index on a five-year basis.

Its MSCI Malaysia IMI benchmark only came into existence in 2007 and the fund came in slightly under it on a three-year period, returning 76 per cent compared with 81.28 per cent.

The GAM Singapore & Malaysia Equity fund offers another entry point into the country, and has returned 232.48 per cent over 10 years.

The GAM fund is free to invest in other countries in the region and currently holds 16 per cent in Hong Kong and 7 per cent in Indonesia. It requires $10,000 to access, while Fidelity Malaysia is more accessible at $2,500.

However, Colin Ng, manager of the Baring Eastern Trust, warns that valuations in Malaysia may currently be too high.

He says that the defensive nature of the market will likely hinder performance relative to other regional economies, while elections due this year mean uncertainty will remain over the country’s future direction.

Turkey GDP growth in the fourth quarter of last year in Turkey was 5.2 per cent, the lowest for two years, but still substantially better than the UK's 0.2 per cent drop.

There are two FE four-crown funds focusing on the country that have produced strong returns since launch – although both require €5,000 to enter.

Charlemagne Magna Turkey, managed by Stepfan Herz and Robert Bonte-Friedheim, has returned 55.7 per cent over three years and 19.24 per cent over five.

HSBC GIF Turkey Equity has performed more evenly, with returns of 52.29 per cent over five years and 51.66 over three. Both funds invest heavily in the financial sector.


Emerging market funds

Putting money in emerging markets is a high-risk, high-return strategy, and a major downside of single country funds – and of those that are restricted to a region or a group of countries like the BRICs – is that often investors are buying yesterday’s boom economies just before they go off the boil.

Bestinvest's Ben Seager-Scott points out that although south-east Asian countries have seen large inflows in recent months and funds have fled the BRIC stalwart India, that trend may have run its course.

"The ASEAN companies aren’t looking very cheap any more. We saw a rally in the beginning of the year and a lot of the value has been realised. This is where some of the problems are starting to emerge," he explained.

"Maybe it’s time to start going back into India."

He stresses that the major benefit of a general emerging markets fund is that it allows the manager the flexibility to shift the funds when the economic wind changes.

He warns investors to be wary of trendy acronyms such as BRIC or CIVETS (Colombia, Indonesia, Vietnam, Egypt, Thailand and South Africa) and says unless they have a strong conviction about a particular single country, or specialist knowledge of the nation, it’s usually best to go for a general emerging markets fund.