Ashburton’s recently launched Chindia fund aims to tap into the huge economic growth forecast for China and India but some advisers are asking why investors would choose this fund over a more widely spread Bric or emerging markets fund.
The company believes China and India will become the world’s economic drivers over the next two decades. It claims their economies will be worth around $16trn by 2020 and their working populations will rise by 256 million to 1.856bn while the US workforce is forecast to grow by just 20 million.
Chindia is a high-risk investment with potential for significant short-term volatility as the economies grow, so an investor would need to be fairly adventurous and prepared to be in it for the long term.
Hargreaves Lansdown head of research Mark Dampier says: “Both markets have been travelling very hard and both could fall at the same time. If the US economy plummets or risk comes back, these markets would crash but that is the best time to go in. This is a long-term growth area. It is not going to disappear but the markets are going to have a bumpy ride.”
Capital Asset Management director Alan Smith says Chindia will be a rollercoaster ride because both countries are volatile but he says the size of their populations and potential for growth make an attractive long-term investment.
The economies of China and India focus on different industries, which Dampier says works in the fund’s favour. He says: “India has a very service-orientated economy while China’s economy is based on manufacturing so they are not entirely correlated.”
Dampier says half the population of India are under 25 and while China’s one-child policy has shrunk its younger generations, he claims its government will be more determined to bring its people fully into the 21st Century. He says the middle classes in both countries have grown and younger people, who now have higher disposable incomes, are becoming fully fledged consumers.
But Churchill Investments head of research Warren Perry believes investors should not limit themselves just to emerging markets when they could access a wider selection through a Bric or emerging markets fund.
He says: “We would suggest people use a fund that offers the whole gamut so we would not recommend this fund. Chindia could be a very good performer but it will see a lot of volatility and why restrict yourself to India and China when you have got Russia, South America and Eastern Europe?”
Perry says investing in firms which do business in China and India but are owned, based and managed in the UK would be Churchill’s preferred option.
Farley says Chindia is designed to be more focused than emerging markets or Bric funds and will cater to a different investor. Ashburton believes these countries will outperform all others over the coming decades.
He says: “We do not like the politics in Brazil and Russia, nor the fact these economies are resource-driven. In the long term, China and India will offer the best returns anywhere and we think they will offer more together than as single country funds.”
He says the ability to invest a small percentage in companies outside China and India makes the fund flexible and attractive.
Dampier suggests that such a fund could be good for a long-term hold through a regular savings plan, pension or child trust fund.
Smith says most of his clients look at pensions as long-term strategies so such a fund would work well.
He says: “I think there would potentially be a lot of people who would be interested in this and would not be surprised to see more boutique investment companies moving into this area.”