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New world order books

JM Finn is opening up its very successful global opportunities fund to the wider market and it is focused intently on the epoch-making shift of economic power from the West to fast-growing emerging countries

The Jm Finn global opportunities fund may be a name that you are only vaguely familiar with but JM Finn was founded back in 1945. It is owned privately and is among the biggest independent stockbroking firms in the UK.

It is only recently that they have made the move into fund management. Their global opportunities fund is run by Anthony Eaton who joined them in 2001. He previously worked for Greig Middleton where he had been a director since 1996. In January 2004 he launched this fund, originally intended just for their own clients, but it is now being opened up to the marketplace.

To date, the performance has been extremely good, with the fund not only being top quartile, but vying for a top three place most of the time. I am looking at the fund over a particularly favourable period, so you need to know something about it rather than just buying on the back of performance.

This is no ordinary global fund and is in some respects, despite its global nature, a far narrower fund than you might expect. The fund has one big theme which, in summary, is the urbanisation of the world beyond the West. Mr Eaton believes this is a huge theme that will play out during our lifetime. He believes a new world order is appearing and the baton is moving from the West to the newer emerging markets of India, China, Vietnam, etc.

Most of you will be familiar with this theme and if you look behind the scenes you will realise that there is still much further to go. The old world dominance of the West was reliant on cheap materials and labour abroad. However, the new world order is seeing these becoming more expensive, we have all seen the price of basic commodities moving up, for example. Pricing power is moving away from Western consumers to the producer economies.

Thirty years ago, the US, Japan, UK, Germany and France accounted for 90 per cent of the world by GDP. Now it is 64 per cent and falling steeply.

The new world order consists of Latin America classed as the world’s farmer, China the world’s manufacturer, Africa the world’s miner and, probably the most interesting of them all, Russia the world’s oil supplier.

The West has become a service provider but it is deeply in debt and has an ageing population which means it is going to be far less dynamic.

The newly industrialised countries are now competing with the West for supplies of raw materials. The price of all commodities has been rising, especially agricultural products.

It was a major story in the news last week that the price of wheat is going through the roof. This demand has come at a time when the basic industry is in no shape to provide adequate supply. The last great oil finds were probably in the 1950s. Agriculture has been run down significantly, just look at the set-aside policies in the EU, and the mining industry has been diminishing. When you consider it takes some 15 years to build a mine and get it into production, the supply chain problems become apparent.

So this is really a singletheme fund but this theme is set to run for some time. The last great industrial move was probably after the Second World War with the Marshall Plan rebuilding the West. Bear in mind that the plan affected around 300 million people, a significant number but tiny when compared with the new emerging markets with populations over three billion. It is not hard to extrapolate some longterm themes here.

Mr Eaton tries not to spend too much time looking at price/earnings ratios and looking at relative value of companies, it is the theme that is most important.

His ideas come from his own research and analysts, he listens to what everyone has to say and then tries to take meaning from it. He looks at supply chains all the way down the line. For example, for construction, you could start with cement suppliers. However, he looks at the big picture, investing all the way along from the companies that mine the raw materials to the companies that manufacture the construction machinery.

In conclusion, this fund will clearly be far more volatile than most global funds because of its focused theme. In the short term, it has been affected by the recent market turmoil but if you really believe in this big bang concept – and all the evidence suggests that it is hard to make the opposite case – then this fund should be on your buy list.

The only alternative I can see in terms of global funds would be M&G global basics, which we are all well aware has done well under Graham French. However, I think this is a more purist form and has a hugely enthusiastic fund manager at the helm. Do check it out, it is definitely one for the bottom drawer.


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