The multi-manager team at Hawksmoor is diversifying its Vanbrugh fund away from mainstream emerging market debt and equity funds because it expects returns to be muted compared to the past two years.
The company is focusing on relatively cheap frontier markets and funds that will benefit from the appreciation in emerging market currencies.
The firm says low interest rates and quantitative easing used in the US and Europe to aid economic recovery and combat deflation are causing price rises in emerging markets and commodities. But some emerging market countries are already finding it hard to contain wage inflation and China is raising interest rates steadily to restrain prices.
Hawksmoor says rising interest rates can push back asset prices and that disappointing growth in emerging markets would also undermine commodities. It does not believe in avoiding emerging markets and commodities completely but is mindful that other areas have the potential to lead equity markets, such as multinational healthcare and environmental companies.
Chief investment officer Richard Scott says: “While wary of the valuations of some mainstream emerging markets, we are accessing exposure to their economic growth more cheaply than rated frontier markets and funds run with a value approach.”