Many investors, particularly when just starting, can be nervous when it comes to emerging markets. Funds that invest in the potential future engines of global growth tend not to feature in most portfolios. There’s still a perception that emerging markets are only for the brave.
This might have been the case 20 years ago, but increasingly emerging markets are the key drivers of global growth. Today, emerging markets such as Taiwan, India and Brazil are home to some of the world’s most innovative companies. With growing, increasingly affluent populations, urbanisation and the potential of disruptive technologies to create new opportunities, emerging markets are looking ever more attractive.
One fund that’s popular with investors is the Blackrock Emerging Markets fund. With a multiple management team, including Gordon Fraser, it returned 50% growth between 2016 and 2019. This compares very favourably with the index benchmark which grew 29.55%.
While the index tends to lean more heavily towards mainland China, it makes up just 10.15% of the Blackrock fund, with India making up 8.32%. Fraser is keen to look beyond China to countries like Brazil and South Africa which he sees as coming economic powers.
Emerging markets favour active investment styles. The share price of companies tends to fluctuate much more than in more developed markets. Good research makes all the difference, something that Gordon Fraser makes a priority. As different countries have very different macroeconomic cycles, the key to Fraser and the team’s success has been investing at the point where growth is at its fastest, then reallocating funds elsewhere when the cycle enters a downturn. Timing is key, and the growth of the Blackrock Emerging Fund compared to the index speaks for itself.
The fund currently has 72 holdings, with technology hardware, banks and retail making up its three largest sectors.
It’s still not a field for the fainthearted but it can offer real rewards. Allocating a small percentage of your portfolio to emerging markets may be a smart move, particularly if you’re a younger investor with time on your side. As a general rule, the longer you can stay invested in emerging markets the more likely you are to see significant returns.