Douglas Brodie, who runs the £388m Edinburgh Worldwide investment trust, has revealed the reasons why he sees more value in biotech stocks than emerging market shares.
Emerging markets have performed extremely well this year, with many investors taking the view that it is in the developing world that significant and sustained economic growth is happening.
Edinburgh Worldwide is a trust that invests in global smaller companies. Mr Brodie said his trust differs from most other small cap funds because it is not run on a regional basis.
He said the trust is only interested in companies that can be global players and this means he has little exposure to emerging market smaller companies.
Many small caps in those markets "are local companies solving local problems," he said.
"They are inward looking in terms of the problem they are trying to solve, which means they cannot get the scale we like, which can make it a global leader."
Many global growth investors are keen on Asia and China in particular.
But Mr Brodie said when he looks at the Chinese market he was expecting to find lots of internet companies due to the existence of technology giants such as Alibaba and Tencent, which are already global players.
But he said the big Chinese technology names are so dominant in their own markets, and are large cap companies, that what he calls "tier 2" internet companies have not been able to develop.
Around 60 per cent of the trust is invested in technology and biotech.
If emerging markets have been strong performers this year, biotech has been deeply out of favour. The MSCI Global Biotech index lost 9 per cent in 2016, a period when the global index rose 8 per cent.
Biotech has also marginally underperformed the global index in 2017.
Mr Brodie said biotech has traditionally been a tremendously volatile area, but he feels the investment case for such businesses has profoundly changed.
The fund manager said biotech used to be "about companies that were looking to raise £400m and had one drug they wanted to put through trial to see if it works, and they think it works but if it doesn't work you have nothing".
"Nowadays, things like genome technology mean the companies know more about the problem they are trying to solve before they come to market, and have more of an idea of how they are going to solve it, and they have more than one drug to go through trials based on the thinking they have," he said.
That extra clarity doesn't mean biotech shares will be less volatile, but it does mean the investor has more knowledge prior to making the investment, he argued.
He tends not to buy companies with a market cap below $200m, and goes up to $2.5bn.
A biotech share on which he is particularly keen is Alnylam, the second largest investment in the trust. He said the company is developing technology that can target individual genes that are causing harm and irradicate them.
The Edinburgh Worldwide investment trust trades at a discount to net assets of 3.2 per cent.
Jonathan Davis, who runs Jonathan Davis Wealth Management in Hertford, said he has been increasing his emerging market exposure as they tend to perform better as inflation rises.
