The Batterymarch emerging markets equity fund aims for growth by investing in equities across countries such as Brazil, China, South Korea and Russia. It is benchmarked against the MSCI Emerging Markets Net Dividends index but the portfolio will not be a slave to the index.
The fund will be managed using a team approach, with regional specialists combining quant screens with bottom up stockpicking. The team can invest in opportunities outside the benchmark index and will broadly diversify the portfolio across industrial sectors.
David Lazenby heads the Battermarch emerging markets equity team which includes Ray Prasad and Curtis Butler, co-managers of the Legg Mason Batterymarch Pacific equity and Legg Mason Asia Pacific funds.
Within the new fund, stocks will be chosen from a universe of 2,200 companies, of which 1,750 are analysed daily. Stocks are ranked and reviewed on a monthly basis, with a string buy and sell discipline in place to ensure team members do not fall in love with stocks.
Favoured stocks are those that benefit from domestic growth. According to Batterymarch, attractively valued currencies, strong foreign reserves and increasing domestic consumption provides a good environment for corporate earnings. Regions such as China and India are also benefiting from global manufacturing and services sectors outsourcing to low-cost emerging economies.
The emerging markets equity team believes reasonable valuations – which are the result of the market not fully realising the extent that emerging markets have cleaned up – strong growth prospects and solid balanced sheets should ensure emerging markets outperform in the long term. They say emerging markets are performing even though developed markets are volatile and in decline as a result of the credit crisis.
This fund’s flexibility in investing across emerging markets will enable it to capture growth within the better performing regions while diversifying across other regions into which it can shift if market conditions change.
Emerging markets have been performing well but this may lead some investors and their advisers to wonder if a correction is on the cards.