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Gareth Morgan may be the only manager in the IMA Global Emerging Markets sector to have made money over the past year, but he is quick to acknowledge that this achievement is partly due to his fund’s focus on Brazil, Russia and India.

“The brief of the portfolio means it is concentrated in these dynamic markets that have been the stellar performers,” he says. “We have also had some notable successes from our alpha generation as well.”

The overall aim of the £37.9m F&C Emerging Markets ex Pacific Asia Equity fund is to provide long-term capital growth by investing in the less-developed countries of Latin America, Africa, the Middle East and the emerging Europe economies.

“The attraction of the fund from an investor’s viewpoint is the fact it has a higher concentration in different names than the typical global emerging markets fund,” he explains. “It invests in interesting, faster growing markets.”

Mr Morgan, who took over the fund in December 2005, uses a combination of top-down country rankings and bottom-up stock selection to construct the fund, which is benchmarked against the MSCI Emerging Markets ex Asia Pacific index.

“We use a system to rank countries and stocks from one to four, where one is positive, high conviction,” he explains. “Typically those chosen for the portfolio would normally be either a one or a two.”

These decisions are made with input from the 13-strong global emerging markets team at F&C. So which areas are in favour at the moment and which are being shunned by those involved in fund construction?

“We are currently overweight India, which has been our best generator of alpha and still overweight Brazil because of the strong broad base economic strength and the empowerment of the consumer,” he explains.

Russia is another positive area. “It has been a fantastic economic story over a number of years,” he adds. “There may be some short-term issues but on a longer-term perspective it is still a market we like.”

The fact that infrastructure investment in Russia as a percentage of GDP is so low compared with developed markets – and that there has been a concerted effort by its government to increase spending – are other reasons for optimism.

In contrast, Mr Morgan is negative on South Africa due to concerns about the fragility of its economy. “We are also underweight Egypt because we have some economic concerns,” he adds. “There is a bubble building and we see better value elsewhere.”

As far as themes are concerned, Mr Morgan is a firm believer in the global infrastructure story. “Stocks like Evraz Group is the way to play this theme in Russia because it is the main producer of products for the construction industry and also has a near monopoly on rail lines,” he explains. “The Russian railway system has a huge capital expenditure plan so this is a multi-year story.”

Oil and gas is another favoured area of the fund which was launched back in December 1996. Petrobras of Brazil, for example, accounts for 4 per cent of assets under management. “It was disappointing the market for a number of years on its production but is now seeing strong growth in this area,” explains Mr Morgan. “It is also attractively valued and a key beneficiary of the high oil price.”

The number of stocks is currently at the higher end of its typical 60-80 range. “The markets are quite volatile at the moment so it pays not to have all your eggs in one basket,” he adds, estimating the annual turnover to be 200 per cent.

“We are looking for triggers and catalysts for stocks,” he adds. “This can include strong spending in a particular area, high volume sales of its products and a strong pricing environment. In addition, all the stocks we own have strong managements.”

The top-10 holdings, which account for just over 42 per cent of the fund’s assets under management, include Lukoil Holdings, America Movil, MTN Group and Gazprom.

While Mr Morgan accepts investors are in for a “choppy period” over the coming months, he remains confident that the investment story for emerging markets still stacks up and that the fund is correction positioned in key markets.

Having spent more than a decade covering these regions, he says most of these emerging countries no longer suffer from the political extremes of the past, and have become less dependent on capital inflows in recent years.

“They have benefited from the commodity boom which has given rise to a large domestic savings base,” he points out. “Along with the strong economic growth has come a more affluent consumer and this is a secular story.”

That is not to say everything will be rosy. Weakening global growth, rising inflation and ongoing credit problems are affecting the external environment, but the domestic demand within these markets remains strong.

The economic peaks and troughs of the past, therefore, appear to have been consigned to the history books. “The long-term growth is in place and there is more political stability in these markets,” he says. “A lot of them are also benefiting from broad base economic growth and attractive valuations.”

In particular, he notes, the financial problems that have gripped the West in recent months are not a problem. “Most banks in Brazil and Russia have no exposure whatsoever to the sub-prime woes that have afflicted developed markets,” he adds. “I am not saying emerging markets are a safe haven but the story remains strong.”

Rob Griffin is a freelance journalist