Aylward ups exposure to emerging markets
Starkly low valuations in emerging markets have prompted Aviva Investors’ multi-managers to haul their exposure up from underweight to neutral.
Ian Aylward, head of multi-manager research at Aviva Investors, said he had recently introduced a mandate run by T Rowe Price into the flagship retail multi-manager funds he runs with Peter Fitzgerald.
The US-based group already runs an emerging market equities mandate in some of the multi-managers’ other non-retail portfolios, but it now features in its mainstream retail products.
T Rowe Price was awarded the mandate 18 months ago when the Aviva managers switched to it from Aberdeen.
Mr Aylward said his £149m Multi-Manager 40-85% Shares fund now had a 3.5 per cent exposure to emerging markets, up from 2 per cent at the end of last year.
The average exposure to emerging markets in multi-asset funds across the Investment Association universe is 3.5-4 per cent, according to the manager.
He said the decision to increase his exposure was “mostly on valuation grounds”.
“We are not hugely bullish on emerging markets but the correction in price we have seen does mean the sector is at a relatively low level,” he said.
The manager stated the average price of emerging market companies was “significantly below the 20-year average” using the price-to-book ratio, which sits at 1.5x at present.
He added the price-to-earnings ratio – another measurement of company valuation – was 10x, a low level considering “it rarely gets below 8-9x”.
Mr Aylward said emerging markets had the tailwind of more stable central banks, while several countries, such as India, now had elections behind them.
“There are also headwinds though as a strong dollar is usually a time when emerging market equities struggle,” he said.
Although some emerging countries’ stockmarkets, including India and China, performed well in the past year, there are issues brewing – particularly in Russia.
Mr Aylward said the team behind the T Rowe Price fund did not take major bets and that it was their stock and sector selection that drove the investment process, rather than country selection.
“The T Rowe Price team has a preference for consumer staples as it sees the emergence of the middle class,” he said.
“The fund has done very well for us and outperformed its benchmark MSCI Global Emerging Markets index by 3.5 percentage points last year.”
The T Rowe Price mandate now sits alongside a holding in the £571.9m Schroder Asian Alpha Plus fund run by Matthew Dobbs.
Mr Aylward said he saw the Schroders fund as an “emerging Asia” play, thanks to its large exposures to China and India, as well as some investments in Taiwan and Thailand.
