Five emerging market growth options for your ISA

A recent report from the International Monetary Fund* says the global economy is set to grow at a modest 3.5% in 2019 (down from 3.7 last year). However, when we look closer, we can see that almost all of this growth is set to come from emerging economies with the financial institution forecasting growth of 4.5% for them compared to only 2% for the developed world.

With longer-term global growth also favouring emerging and developing economies we put the focus on five funds which could deliver growth both in 2019 and beyond.

GSAM India Equity Portfolio

The IMF believes India will be the fastest growing economy in the next couple of years with growth estimates of 7.5% and 7.7% for 2019 and 2020 respectively. It says the economy is due to benefit from lower oil prices and a slower pace of interest rate rises than previously expected, as inflation pressures ease. 

This is an all-weather Indian fund with a well-resourced and experienced team, based on the ground in India and Singapore. It has a solid investment process and the team undertake a large number of company meetings each year. Manager Hiren Dasani says that, like the population, investment opportunities in India are still young and growing.

The fund currently has just over a quarter (25.5%) of its sector exposure in financials. The portfolio has returned 131.37%** in the past five years .

First State Greater China Growth

Despite the ongoing trade war with the United States and a deeper than envisaged slowdown in its own economy in 2018, the IMF has still forecast that China will grow at 6.2% in the next two years. This figure is down on the 6.6% estimated for 2018, but is well ahead of all of the advanced economies across the globe.

Fund Manager Martin Lau has been the lead on this fund since it was launched in 2003. He targets companies in sectors with high barriers to entry, have pricing power and can demonstrate sustainable growth. The portfolio normally consists of 50-60 holdings and also has the flexibility to invest in 'Greater China', notably Taiwan, which is a more defensive market and an area that is used by the team when they are less positive on the shorter-term prospects for Chinese equities.

The fund is well-diversified from a sector perspective with Information Technology (21%) the largest exposure. The fund has returned 89.16%** in the past five years.

Fidelity Asia Pacific Opportunities

Overall, growth in emerging and developing Asia is expected to be 6.3% in 2019 and 6.4 % in 2020.

This fund has just shy of 70% of its holding in China, Taiwan, Hong Kong and India.

Manager Anthony Srom has a high a conviction investment approach and builds his portfolio purely on valuation, investor sentiment and research.

The portfolio currently holds 32 stocks and Anthony aims to lower potential volatility by making sure the portfolio is diversified, while correlations of underlying stocks are monitored closely. The fund can only hold up to 35 holdings and uses a one-in one-out policy once it reaches that limit.

There are some constraints, with sectors and country exposures and, if the price of a company's shares moves by 30% or more, it is monitored closely. The fund has returned 96.8% since launch in September 2014.***

Matthews Asia Pacific Tiger

This is the flagship fund of this Asian specialist manager based in San Francisco. The fund's investment philosophy is to ignore short-term macroeconomic noise and focus entirely on the long term.

The fund aims to buy high quality, capital-light businesses, which have great potential for growth. Corporate governance is extremely important. The team spend 3-12 months working on each new investment idea. Manager Sharat Shroff and his team have a strong local knowledge and speak 13 languages between them.

The current top five holding in the fund are China/Hong Kong based companies, with both China and India accounting for more than half (54.4%) of the portfolio in total. The fund has returned 86%** in the past five years compared.

Lazard Emerging Markets

This fund looks to invest in the global brands of tomorrow in developing regions. Companies not domiciled in the emerging markets but that derive more than 50% of their net assets and/or sales from emerging-market countries are also included in the research team's initial universe.

The team will consider economic and political factors in each emerging country and environment, social and governance issues - such as company pollution levels, sustainable practices, use of child labour, alignment of interests and past corporate governance experience - are also assessed by the team before they will invest.

It currently has around 57% invested in emerging Asia, with the second biggest weighting being Latin America at 13%. Over the past five years, it has returned 41.89%. 

*Source: All IMF figures from its World Economic Outlook Update, January 2019
**Source: FE Analytics, total returns in sterling, five years to 5 March 2019
***Source: FE Analytics, total returns in sterling, 24 September 2014 to 5 March 2019

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's views are his own and do not constitute financial advice.

Published on 06/03/2019