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Top pick funds to access emerging market affluence

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Investing in growing consumer confidence - September 2013

In the past few years, consumer stocks globally have had an extended period of outperformance.

One reason for this has been the growth of ‘emerging affluence’ in the developing economies. As these economies continue to develop and more people have rising disposable income, demand for consumer goods and services is growing.

A note of caution, however, is that while the growth of consumer demand in the emerging markets is likely to carry on for decades, the recent rapid rise in the share prices of a number of consumer companies, particularly those in the emerging markets, means valuations on the whole are not looking cheap and, in some parts of the market, are looking pretty expensive.

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With that in mind, here are a few different ways to take advantage of the consumer theme:

First State Worldwide Equity and First State Worldwide Sustainability

These two mandates both have heavy exposure to the consumer sector.

Worldwide Equity was launched in summer 2011 and is managed by Stuart Paul and Jonathan Asante. The consumer is a major theme, with almost 40 per cent of the fund in the ‘consumer staples’ category, compared with 11 per cent in the MSCI AC World index.

First State Worldwide Sustainability was launched more recently and is managed by David Gait, who is also responsible for the sustainability funds for Global Emerging Markets and Asia Pacific. Consumer staples accounts for roughly 30 per cent of this fund.

While there will be a significant overlap between the two funds, the Sustainability fund won’t invest in stocks that the manager believes either fails First State’s standards for ethical, environmental or corporate governance, or has a business model that isn’t deemed sustainable.

Fidelity China Consumer

This fund invests in the largest of the emerging economies, China. The manager, Raymond Ma, should be considered one of Fidelity’s rising stars, and this is his first real retail mandate, having been an analyst in Fidelity’s sizeable operation for a number of years prior to this.

But this fund is particularly risky, being focused on a single sector in a specific region of the emerging markets.

db x-trackers Consumer Staples and db x-trackers Consumer Discretionary ETFs

Alternatively, investors may want to consider using a passive option to access emerging market consumers.

In this case, they should look at two exchange-traded funds (ETFs) from db x-trackers: the Consumer Staples and Consumer Discretionary TRN Index ETFs. These use synthetic replication but the ETFs are over-collateralised, and investors can see exactly what collateral is being held on their website, on a daily basis.

Ben Seager-Scott is senior research analyst at Bestinvest