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Emerging fund wins backing despite volatility

Despite recent poor performance from the First State global emerging markets fund, Morningstar continues to back manager Angus Tulloch.

Investment fund analyst Chetan Modi says the fund should be seen as a high-risk investment but its strengths lie in the management’s experience and steady approach to investing in notoriously volatile markets.

He says fund managers Angus Tulloch and Jonathon Asante aim to find high quality companies with recognisable brands that they believe can deliver sustainable growth for the long haul.

Modi says: “Tulloch and Asante like to see companies that show the potential to grow and sustain real earnings at a rate of 5-10 per cent a year.

“Their strategy leads to a portfolio construction that illustrates the managers’ willingness to go against the grain and this can cause the fund to lag its peers at times. Over the one and three-year periods to the end of September, the fund gravitates to the bottom quartile of its category and also lags the MSCI Emerging Markets index over both periods.”

But Modi considers that some of the fund’s relative underperformance can be explained by the fact that the managers have avoided some of the “racier” and cyclical areas in the energy, financial services and industrial materials sectors.

He says: “Conversely, the overweight positions are in the utilities and consumer goods sectors, which expose the fund to earnings that tend to be stable and less cyclical in nature.”

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