Page 42 - DIY Investor Magazine - Issue 28

The Aberdeen Emerging fund has also taken meaningful exposure to frontier markets, an area that has been problematic in recent years, but which the team thinks could recover sharply if investors’ money starts to flow back into these countries. Another fund with sizeable exposure to this area (up to a quarter of the portfolio) is Jupiter Emerging & Frontier Income. Its manager, Ross Teverson, was cautious on China last year on valuation grounds, and this held back returns. He thinks that 2021 will see a broadening of interest in the sector to other countries. He thinks that the structural growth opportunities in these markets are even greater than in China and this is not priced in. Ross highlights lower levels of debt in many of these countries, more favourable demographics and often better corporate governance. Both sets of managers are more positive on the outlook for India than they were. Ross attributes some of this to the reforms that the Modi government has introduced to make its economy more efficient. Dedicated Indian funds with exposure to mid and small cap stocks, such as India Capital Growth and Ashoka India Equity have been doing much better recently (India Capital Growth’s NAV is up by 65% over the past 12 months). Longer term, the best-performing global emerging markets trust has been JPMorgan Emerging Markets. JPMorgan Emerging has been managed for the past 27 years by Austin Forey, who focuses on buying and holding growth companies for the long term. Over the past few months, favouring growth stocks has held back the trust’s relative performance. The sector’s largest fund, Templeton Emerging Markets has been similarly affected. Effectively, it has half its portfolio invested in just five companies – Taiwan Semiconductor, Samsung Electronics, the Korean web company, NAVER, and the two Chinese technology giants Tencent and Alibaba. Its NAV has been held back as these stocks have been hit by profit-taking. It seems a waste of an opportunity to us to put so much of your emerging market investments into so small a basket. A recent quote from Andrew Lister sums up the opportunity: “Today, we see a much smaller contraction in emerging economies’ GDP and, looking into 2021 and beyond, economists are forecasting more rapid growth for these countries. Non-China emerging markets should account for almost half of global growth within five years. By 2025, 80% of the world’s growth could be coming from emerging market .” CLICK TO VISIT: DIY Investor Magazine | Apr 2021 42