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Selector’s strategy for capturing the EM comeback

Selector’s strategy for capturing the EM comeback

Emerging markets can be a tricky sector to navigate, as political tensions continue to plague the asset class, concerns from investors are mounting.

However, for Kredietrust’s Gabriel Catherin this can uncertainty can create a platform for unearthing previously overlooked or unloved investment ideas.

'Part of my job is as a fund analyst; the majority of my time is taken up looking at emerging markets and Japanese funds. As there is less demand in Japan recently, most of my time has been spent looking at EMs for new opportunities.

'Currently, there is more demand for global emerging market funds than for specific regional emerging market funds. At the beginning of last year most of the allocation was through ETFs, with little demand for active funds.'

With global events such as tensions in North Korea, corruption scandals in Brazil and sanctions against Russia, Catherin said investors prefer to have a selective manager and active investments.

'Even if the trend for emerging markets is now a bit more complicated, we are starting to see a switch from ETFs to active funds.

'At the moment, we are also seeing a comeback in quality growth in emerging markets, and we think that funds that invest in themes such as domestic consumption and IT, will do better in these markets.

'In Japan we propose our in-house product the Richelieu Equity Japan fund, managed by a third–party firm, which is ValueInvest Asset Management. This is as well as the GAM Japan fund and the Invesco Japanese Equity fund. For emerging markets, we propose funds with different styles and investment processes.’

Elsewhere for blend exposure, Catherin said the team is also recommending more globally-focused EM funds.

‘The JPM Emerging Markets Opportunities fund is good for growth exposure, while the Comgest Growth Emerging Markets fund is useful for value and we recommend the use of the M&G Global Emerging Markets fund.'

Robotics revolution

Elsewhere, when it comes to thematics, Catherin said there are currently two major trends at the moment: robo-advisers and robotics funds.

‘When you dig a little bit deeper into the robo-adviser platform, you see that it is primarily an optimiser on return and past volatility, and it isn’t much of an improvement on what active managers are doing today. You can be a robo-adviser and still have the same results as an active adviser.

'Also, we have seen many asset managers launching robotics funds which focus mainly on specialised sectors - but for us, it’s mainly a marketing ploy.'

Catherin said the team has seen the same trend with various thematic products such as water funds.

'There is lots of demand because of the story, but at the end of the day the product isn’t doing better than a classical allocation,' he said.

'It’s not just a question of performance, but about the story. People see more and more robots in their life - doing things like mowing grass and vacuuming - and they want to be invested in that area.'

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