Last year was a good one for developed market equities. The FTSE All-Share gained 20.81 per cent in 2013, while the S&P 500 index rose 29.1 per cent and MSCI Europe increased 22.91 per cent.
Emerging markets, however, have had a difficult few years and have lagged their developed market counterparts. In 2013, the MSCI Emerging Markets index posted a loss of 4.46 per cent.
But the opportunities in 2014 could signal a change for global investors. Pat Ryan, manager of the Lazard Global Equity Income fund, predicts: “The best opportunities for 2014 are in Europe and the emerging markets.”
Jeff Chowdhry, head of emerging market equities at F&C Investments, says: “Those who follow the adage that you should buy shares when everyone else is selling, and vice versa, have been well rewarded. By that logic, now is the time to be purchasing emerging market equities. Investors in emerging market assets have suffered a challenging year or so of performance. Emerging bond and equity markets have lost ground against their developed country peers, with Brazilian and Indian stocks sustaining double-digit sterling denominated losses in the past 12 months. This is in contrast to Japan, the US and Europe ex-UK, which posted returns of between 20 and 30 per cent.”
Global opportunity fund managers have certainly been taking advantage of the growth in the western markets. James Thomson, manager of the Rathbone Global Opportunity fund (see page 23) has re-shaped the portfolio and now has more than 60 per cent allocated to US stocks.
Similarly, Ilario di Bon, manager of the Alliance Trust Global Thematic Opportunities fund, profiled on page 25, has a 58.3 per cent allocation to the US – the largest in the portfolio – followed by a 12.5 per cent weighting to the UK.
China is an area of contention as the emerging market continues to succumb to the pressure of moving towards a more domestic-consumer-led economy rather than one reliant on exports.
Equally, managers of these funds are not yet buying into the hype surrounding Japan, with the managers interviewed each having less than 5 per cent exposure to the region.
But Simon Nicholas, senior fund manager at Brown Shipley, warns that those overlooking the opportunities in Japan will lose out. “Now that the yen is weakening, it is providing a ‘turbo’ charge for Japanese exporters, boosting the value of those overseas earnings when converted back to Yen. These companies also have huge optionality now with vastly increased profitability and competition beating pricing and additional sales volume,” he claims. “Love it or hate it, but don’t overlook Japan in 2014.”
THE PICKS
NEWTON GLOBAL OPPORTUNITIES
The largest of the global opportunity equity funds in the IMA sectors, this portfolio is run by Robert Hay. Performance has been steady since its launch in July 2005, outperforming the IMA Global sector average over five years with a return of 78.6 per cent, in addition to outperforming the sector over one- and three- year periods. The fund’s largest geographical weighting is to North America at 51.2 per cent. Its sector bias is towards consumer goods at 19 per cent of the portfolio and healthcare at 18.4 per cent. .
RIVER & MERCANTILE GLOBAL OPPORTUNITIES
Performance has been patchy, lagging behind the IMA Global sector significantly in the three years to January 2 with a return of just 7.15 per cent, dragged down by a poor 2011. One-year performance has improved significantly to a return of 15.56 per cent, although this is still slightly behind the sector average and the FTSE All-World index. Run by Alex Stanic, the fund currently holds roughly 62 positions, with the largest sector weightings in healthcare and consumer services
EDITOR’S PICK
INVESCO PERPETUAL GLOBAL OPPORTUNITIES FUND
Launched in October 1997 this fund, run by Stephen Anness, is still relatively small with £128.9m assets under management as of November 30 2013 yet performance has been extremely strong, ranking top in its peer group of global opportunity equity funds across one and three years. It is also third over five years to January 2 with a return of 95.67 per cent, compared with the IMA Global sector average of 69.75 per cent. The fund is entirely driven by high conviction, unconstrained stock selection.
