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Next 11 from Castlestone

Alternative investment manager Castlestone Management has introduced an offshore fund focusing on the next 11 emerging markets to follow in the footsteps of Brazil, Russia, India and China.

The next 11 emerging markets fund provides geographical diversity, focusing on Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam. It invests in these countries mainly through equities, but can also gain exposure through derivatives, exchange traded funds and other investment funds.

The fund aims to benefit from economic development within these markets by investing in companies with stronggrowth potential. The fund is not constrained by a benchmark and takes a long-only approach. It will typically have 30 to 35 holdings. Equities will be selected through a bottom-up approach, with a focus on firms with attractive valuations and strong corporate governance.

The fund will be run by portfolio manager Arrash Zafari, Castlestone’s emerging markets specialist. Zafari will be supported by an in-house analyst team and an investment committee based in London and the British Virgin Islands.

Over half of the fund’s holdings will normally be invested in markets that provide greater liquidity and higher levels of corporate governance and transparency, including Turkey, Mexico and the Philippines.

Castlestone says the next 11 economies are often not closely linked to Europe and valuations are low, which provides a good entry point. Firms in these countries are typically geared towards a young, increasingly wealthy consumer base and are less followed than the Bric economies, which means they can be picked up more cheaply.

The appeal of this fund lies in its exposure to countries that are not burdened with the debt of developed markets and which can potentially offer Bric-like growth. The next 11 countries also provide diversification through markets that are relatively uncorrelated to each other and to developed economies.

These markets may difficult to gain access to unless as a small part of global emerging markets funds with high weightings in Bric regions. The fund may be used as an alternative or complement to Bric funds but its British Virgin Islands domicile may not appeal to some investors.


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