However, my research for FE Trustnet stories over the past few months has led me to have some serious doubts about this sector.
The developed world has outperformed the developing world over the past five years in stock market terms, and the fund managers I speak to all give me reasons for this that seem quite likely to hold for some time.
Among these are that emerging markets are more cyclical, their markets are more bound up with global demand for commodities, and they are not doing so well thanks to a withdrawal of investment from the West.
In short, emerging markets aren’t likely to outperform until the world economy starts to pick up.
Personally, I don’t see any reason to be confident this will happen any time soon.
I have picked a lot of mid cap and small cap UK funds in my pension, which probably goes against most people’s idea of what I should be doing.
I want to catch the trailing end of the smaller companies and mid cap boom in this country, and I like the growth that is being achieved by these companies both in the emerging markets and in new industries here at home.
We are all told that emerging markets are the best bet over the longer term for demographic and economic reasons.
That may be true – although economies are not markets – but I see little reason for buying something now in the hope that it will start to do well in five years’ time.
Of course the argument is that you shouldn’t try to time the markets, and second-guessing when a certain region is going to outperform is a fool’s game.
To a certain extent I disagree with this. I intend to be quite active with my pension over the years – it is going to be harder for me to forget about it than for most people who don’t spend all day, every day thinking and writing about funds.
However, to an extent I take the point: it’s far better to have a manager make that sort of decision than a journalist.
In fact, the flexibility that Invesco Perpetual Global Smaller Companies has is one of the reasons I like it.
The £450m fund sits in the IMA Global sector and concentrates on the developed markets, as is normal in that area.
It has 30.21 per cent of its assets in the US and 13.02 per cent in Japan, along with 9.3 per cent in the UK, the three largest country exposures.
However, it can invest in emerging markets as it sees fit, and has money invested in Brazil and China among other places.
I am hoping the managers will increase their weighting to these countries as the outlook for them improves, although there is nothing to stop me from shifting into a fund with an emerging markets focus if such a trend starts.
The Invesco fund has done very well over the past decade, finishing third in the sector over 10 years with returns of 274.82 per cent. Over the last five years it has made 67.48 per cent.
It is a smaller companies fund, of course, so comparing it to a sector made up of large cap funds is not that useful.
The fund has significantly outperformed the relevant benchmark over the longer term: the MSCI World Small Cap index has made 225.5 per cent over 10 years.
However, the index has outperformed slightly over five, making 68.21 per cent, albeit with slightly higher volatility.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fund is managed by a large team, with a centrally located group headed by Bob Yerbury and including chief investment officer Nick Mustoe receiving reports from regional analysts detailing the opportunities in their part of the world.
The team makes a call on which regions it wants to be invested in and then uses the analysts’ work to select the best stocks on offer in the relevant regions.
They have recently profited from a strong period for Europe and are taking profits and moving more into Asia, exactly the sort of call I am happy to pay the ongoing charges for them to make.
It’s a highly diversified portfolio that has up to 400 stocks at certain times, which reduces the risk of any one company’s problems damaging the fund.
Volatility isn’t a major concern for me given my long-term horizon, but I don’t want a manager to subject my money to unnecessary risk.
The fund is highly regarded by the FE Research team, whose members say that smaller companies worldwide have deleveraged after the financial crisis, which should make them potentially less volatile.
In the past the fund has done worse than the market when it is falling and better when it is rising, which is normal for a smaller companies funds, but the FE analysts say that this could be less marked in the future thanks to the improvements smaller companies have made to their balance sheets.
I’m also encouraged by its strong performance in 2009, which should mean that I’m not left behind when markets do eventually turn.
The fact that there is such a big team behind the fund is a plus for me given the wide remit it has, and the focus on smaller companies which requires managers to put in more yards to do the research.
I’m personally not concerned about fees as long as performance is good, but for the record the ongoing charges are 1.72 per cent. The minimum investment if you’re not putting it in your pension is £500.
The analyst’s view:
Richard Troue, investment analyst at Hargreaves Lansdown, said: "A fund with a fully flexible unconstrained approach that invests globally is quite attractive as an asset class for the long-term investor." "I think smaller companies are quite attractive too, so combining the two is overall an attractive proposition."
"That is, of course, providing you have the time horizon for a riskier investment, so for long-term investors who are looking for something higher up the risk spectrum I think it’s an appealing proposition."