Investors who are opening up “lazy” positions in emerging markets following this year’s falls are likely to suffer further losses, according to Aviva Investors’ head of multi-asset Peter Fitzgerald.
Mr Fitzgerald instead urged investors to break up their allocation to emerging markets and focus more on regional allocation.
“We are broadly negative on emerging markets but within that we have quite a high allocation to emerging Europe driven purely by valuations,” the manager said. “The market has become so cheap that you cannot afford not to buy it.”
To build exposure to emerging Europe Mr Fitzgerald has invested in the Luxembourg-based BlackRock BGF Emerging Europe fund, run by Sam Vecht. This product has gained 0.2 per cent in 2013 to December 9, according to FE Analytics, outperforming the 3.8 per cent loss from its MSCI Emerging Europe 10/40 index benchmark.
The expected ‘tapering’ of the US’s quantitative easing programme next year will hit emerging markets as it has already this year, Mr Fitzgerald added, but he claimed the bigger losses would be felt in fixed income.
This led his multi-asset and multi-manager teams to remove all exposure to emerging market debt earlier this year, and the Aviva Investors Multi-Manager Flexible fund now has no fixed income holdings at all.
Where the team does hold bond funds Mr Fitzgerald said he preferred specialist products such as Insight Investment’s £1.4bn Libor Plus fund and the M&G European Loans fund, both institutional products.
The manager said this reflected his preference for investing in bonds with more credit risk – the risk of a company defaulting – rather than those with more sensitivity in interest rate movements.
Mr Fitzgerald’s three multi-manager funds – the Multi-Manager Flexible, Multi-Manager 20-60% Shares and Multi-Manager 40-85% Shares funds – each ranked in the third quartile of their respective sectors based on 2013 performance to December 9, according to FE Analytics.
However, each fund has outperformed its respective sector averages in both three- and five-year periods.
Meanwhile, Aviva Investors’ five risk-managed multi-asset funds – which invest primarily in passive funds – have all posted positive returns this year.
Mr Fitzgerald became co-manager of the multi-asset funds alongside Nick Samouilhan in June following the departure of Justin Onuekwusi to Legal & General Investment Management.