Emerging market funds are clawing their way back among the top performing investments after years in the doldrums.
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Emerging markets have delivered the second best returns this year in comparison to other sectors monitored by the Association of Investment Companies (AIC).
So far in 2016, emerging markets have outstripped average fund performance by close to a third.
Over five years, the performance is even more stellar – weighing in at 52% over the average fund across all sectors.
In recent months, the plunge in value of the Pound on international money markets has given emerging market funds a boost, but investor confidence is more important to sustaining the sector, says the AIC.
What the fund professionals say
To put some perspective on how the sector is working for investors, the AIC has asked some leading emerging market fund managers for their views on the outlook, risks and opportunities for investors.
Here’s a selection of their comments:
Outlook:
Bernard Moody, co-manager of Aberdeen Emerging Markets Investment Company and Aberdeen Frontier Markets Investment Company said: “With emerging markets equities having risen by almost 30% so far this year, albeit with sterling weakness flattering returns to some extent, the obvious question is whether or not the rally can continue.
“We believe there are reasons to remain optimistic. Economic performance is improving across the emerging world and appears to be contributing to the first positive earnings we have seen in a number of our markets for several years. The case is supported by equity market valuations that remain quite reasonable compared with developed markets. “
Opportunity:
Carlos Hardenberg, manager of Templeton Emerging Markets Investment Trust said: “We are finding a number of good companies in the technology sector which are very cheap as they have been punished for the wrong reasons.
Companies in emerging markets are moving up the technology learning curve very fast. We are also interested in the frontier market space, which offers a strongly growing middle class and some very good companies at valuations we haven’t seen in a long time.”
Risk:
Moody said: “While developments in China must be monitored, the other significant risks to emerging markets appear to emanate from external events, with a US presidential election looming and the UK yet to trigger negotiations on its formal exit from the EU. Lower debt levels and higher real interest rates provide for greater policy flexibility in emerging markets than developed markets.”
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