JPMorgan’s Leon Eidelman is eyeing up opportunities in the energy sector for his £1bn JPM Emerging Markets fund.
The energy sector is one of the areas that has been underperforming during the recent slump in emerging market equities, but Mr Eidelman thinks the sector might be ripe for a turnaround.
Mr Eidelman, who co-manages the fund with Austin Forey, said out of the cyclical sectors that have been hardest hit recently, energy companies were looking far better on the fund’s metrics than sectors such as materials.
He said the team was “in the process of reviewing energy stocks” but had not yet bought in.
If he buys into energy stocks, it will be an unusual move for Mr Eidelman and the fund, which currently has a significant underweight position in the sector compared to its benchmark.
The fund instead has overweight positions in higher quality businesses, particularly in sectors such as consumer staples, consumer discretionary and IT.
The emphasis on quality stocks has left the fund looking more expensive than the index, on a price to book ratio of 2.2x rather than the index ratio of 1.4x.
Whenever the MSCI Emerging Markets index has dipped below 1.5 times price to book in the past 20 years, the next year has delivered positive returns, with a median gain of more than 50 per cent.
Mr Eidelman acknowledged that the fund would likely underperform in such an extreme rally as in 2009 because it is not as exposed to heavily cyclical stocks.
However, he said the combination of top notch franchises in emerging markets on low historical valuations meant that it was the right time for investors to be thinking about emerging markets now.