However, there has been a shift in focus from the group recently, meaning that the FTSE indices are now very much on the radar of star managers such as Angus Tulloch and Jonathan Asante.
The perceived poor quality of companies that make up emerging markets indices and their apparent inability to adapt to tough economic circumstances has led First State to open itself up to developed market companies within its stable of emerging markets funds, with indirect exposure to the developing world.
This, it believes, will give the funds a better chance of outperforming in the long-run.
Speaking earlier this year, Asante (pictured) said: "The emerging market indices are full of companies that will find it hard to adjust to a tough world… on balance [these companies are] lower quality than the developed world indices, so they are the sort that will struggle."
This change in stance has begun to play out across First State’s emerging markets funds of late, according to our data. FE Analytics shows that the First State Global Emerging Markets Leaders fund had just under 11 per cent invested in UK companies in September, up from just 3.6 per cent at the beginning of the year.
With this in mind, we thought we would take a closer look at the UK companies First State is holding across its stable of emerging markets funds – they may provide some inspiration to those looking for developing world exposure from the safety of a developed market index.
SAB Miller
SAB Miller is a multinational brewing and beverage company and a constituent of the FTSE 100. Peroni, Foster's and Grolsch are among its biggest brands.
Although UK-domiciled, the company’s roots go back to South Africa, and it remains a gateway to the brewery industry in the continent. Nigeria, which is seeing a boom in its drinking culture, is among its biggest customers.
Asante’s First State Global Emerging Markets Leaders fund has a 4.1 per cent stake in SAB Miller, making the company its second-biggest holding overall. It is a top-10 holding with 16 funds in total, including those with a UK or emerging markets focus. These include Henderson UK Alpha and McInroy & Wood Emerging Markets, which have a 2.4 and 2.5 per cent weighting to it, respectively.
The stock has brushed off the general concerns surrounding emerging markets of late, posting gains of 59.11 per cent over a three-year period. This puts it well ahead of the FTSE 100 index.
Performance of stock and index over 3yrs
Source: FE Analytics
The £48m company has a forward P/E of 19 times, making it more expensive than the average FTSE 100 stock.
For the income investors among you, SAB Miller has an attractive yield of 2.37 per cent.
Spirax-Sarco Engineering
This FTSE 250 index is the most esoteric of those held by a First State fund. It is held by FE Alpha Managers David Gait and Millar Mathieson in their First State Global Emerging Markets Sustainability fund, which currently makes up 0.49 per cent of assets under management.
Based in Cheltenham, the firm manufactures valves for steam heating and processing plants, distributing them all over the world. It has facilities all over Asia including Shanghai, and is therefore a direct play on the industrialisation of China and the surrounding area.
Again, in spite of the company’s increasing emerging markets focus, Spirax-Sarco has had a good run of late, up 46.34 per cent over a one-year period and 75.38 per cent over a three-year period.
Performance of stock and index over 1yr
Source: FE Analytics
In the last trading statement, management reported that its move into emerging markets was in part responsible for its solid interim pre-tax profits and consequent re-rating.
The company, which has a market cap of £2.2bn, is currently trading on a forward P/E ratio of 21 times, making it pricier than the average FTSE 250 stock.
It is a top-10 holding with three funds in the IMA universe, all which have a UK-focus. FE Alpha Manager Chris Hutchinson’s Unicorn Outstanding British Companies portfolio has a 4.5 per cent stake in the firm.
Unilever
Unilever is one of the best-performing FTSE 100 stocks of recent years, and has contributed to the strong relative performance of First State Global Emerging Markets Leaders and First State Global Emerging Markets Sustainability.
It is the number-one holding in both funds, with a weighting of 5 and 5.9 per cent, respectively.
Performance of stock and index over 3yrs
Source: FE Analytics
Unilever’s strong run has pushed it on to an expensive valuation – it has a forward P/E of 18 – which has prompted some managers to sell out of the stock, in anticipation of a significant sell-off.
It is one of the world’s best-known multinational consumer goods companies, with brands including Ben & Jerry's, Dove, Toni & Guy and PG Tips. The stock is a popular play for investors looking to gain access to the consumerisation of emerging markets such as India and China, where demand for these types of products is increasing. Indeed, the slowdown in emerging markets is in part why some fund managers are wary of the company.
Unilever is currently yielding 4 per cent, which is why it is popular with a number of equity income managers. CF Lindsell Train UK Equity and M&G Recovery are among the 96 IMA funds that hold Unilever in their top-10.
It has a market cap of just over £70bn.
GlaxoSmithKline
GlaxoSmithKline is a minor holding for the Leaders fund, with a weighting of just 0.3 per cent.
The FTSE 100 pharmaceutical company sell drugs to countries all over the world, including emerging markets. It was reported earlier this year that Glaxo was expected to start moving resources away from continental Europe and into emerging markets, which may have prompted First State to build a position in the stock.
The company is a favourite with equity income managers, thanks to its healthy and sustainable yield – which is currently at 5.4 per cent – and decent capital growth potential. Our data shows that it is one of the most held stocks in the entire IMA universe, appearing in the top-10 holdings of more than 400 funds overall.
The £76m company is trading on a forward P/E of 13 times, and has beaten the FTSE 100 index over a three, five and 10 year period. It’s slightly underperformed over one year with returns of 12.96 per cent, though.
First State Global Emerging Markets Leaders has also been upping its exposure to continental Europe and the US, and is therefore approaching its 20 per cent maximum limit of investing in companies outside of the MSCI Emerging Markets index.
First State has already accepted that the fund may have to leave the IMA Global Emerging Markets sector if this trend continues, although the Investment Management Association refused to comment on whether it was close to forcing First State Global Emerging Markets Leaders to move sectors.
Even if the fund was forced to switch sectors, Hargreaves Lansdown’s Meera Hearnden does not think investors should be too worried.
"I think their reasoning is very sensible," she said. "They’ve also run the fund quite cautiously, so this is part of their long-term strategy."
"If they want exposure to Peruvian mining, then a company like Rio Tinto fits, even if it is domiciled in Australia."
"When looking at funds, we tend to look at the individual funds in question rather than what sector they sit in. They’re still giving investors emerging markets exposure, so I wouldn’t be too worried."
First State Global Emerging Market Leaders is soft-closed, but can still be accessed if investors are willing to pay a 4 per cent initial charge. It has ongoing charges of 1.58 per cent.
