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Adviser Fund Index

A theme that investors have been playing in the quest for returns is a move towards emerging markets and in particular the Asia Pacific region.

Looking at the AFI Aggressive index, three of the top five funds chosen by panellists are emerging market vehicles – First State Asia Pacific leaders, Ignis Hexam global emerging markets and Aberdeen emerging markets. The First State fund is also the most selected in the Balanced index. Across all three indices, the best-performing constituent fund over three years to November 1 is Investec emerging markets debt, which is up to 78.06 per cent. Aberdeen emerging markets has also been a strong contributor to all three portfolios.

Chelsea Financial Services managing director Darius McDermott has had a fairly hefty weighting to Asia Pacific for some time. He says: “If you were to give me £1 of equity, I would rather invest it there than in the developed world although there are still good managers in, for example, the UK.

“In fact, the more people start to go elsewhere, the more I start to get a bit contrarian but I do believe the fundamentals in Asia are growing faster than in the developed world. In aggregate, it is becoming an incredibly good place to invest.”

The AFI Aggressive index saw its overall allocation to Asia Pacific rise by 7 per cent to 18 per cent in the November rebalancing. The allocation in the Balanced index was up by 4 per cent to 11 per cent and even in Cautious, there is a 6 per cent weighting, up by 3 per cent from the previous rebalancing. These figures reflect the belief of many advisers that opportunities in the East are more attractive than those in the West.

City Asset Management research director James Calder says that while the firm does not invest relative to benchmarks, if one were to look at the Apcims indices, its portfolios would be massively overweight in the Asia Pacific region.

He says: “You have got all the usual arguments; a rising middle class, no debt, markets are nowhere near as fickle or volatile as they used to be and there is strong corporate governance nowadays. It is an area where we feel there is a strong possibility of decent growth levels.”

Calder says for a British-based investor, the risk is slightly higher but it is worth taking.

City Asset Management accesses the region via holdings in Veritas real return Asian and CF Canlife Far East, which Calder describes as an undiscovered gem on which the manager takes a strong macro view. He says: “Our holdings within that part of the world have the ability to protect on the downside, we try to get the best of both worlds. The only downside is if the market is strong they tend to lag but if you are looking for absolute returns, that is not an issue.” Calder says he is much more confident in terms of buying long-only managers in the region.

McDermott says that aside from equities, emerging market debt for some is almost a new asset class. He says: “Would I rather buy emerging market bonds than developed market bonds? While I appreciate the value argument is no longer there, I would put my mother’s money into emerging market debt.”


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