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Soft landing

Global emerging markets are seeing strong inflows as investor appetite for risk increases but many Gem managers are being forced to soft-close their funds due to liquidity concerns.

Managers have more than doubled the size of their overweight position to emerging markets, according to the Bank of America Merrill Lynch fund manager survey for February.

Managers added to their weightings to emerging markets from a net 20 per cent overweight in January to 44 per cent in February.

This represents the second-biggest jump in the region in the past 12 years and follows an improvement in sentiment towards global economic prospects for this year.

Half of the biggest 10 funds in the Gem IMA sector are in the top 10 best performers over three years on a total return basis, according to FE analytics.

Earlier this month, Money Marketing revealed Aberdeen is soft-closing its £2.7bn onshore emerging markets fund to prevent any potential liquidity issues with its holdings. It asked IFAs to remove it from their buy lists by April 1.

Last year, First State Investments soft-closed five specialist Asia-Pacific and Gem funds by making the initial charge of 4 per cent on the funds compulsory to dissuade new clients from investing.

The funds include the £229m Asia Pacific sustainability, £293m Indian subcontinent, £161m global emerging markets sustainability, £117m Latin America and £623m Greater China growth funds.

Baillie Gifford’s £747m emerging markets growth fund was soft-closed in February 2011 when it hit the £1bn mark. The firm’s £421m emerging markets leading companies fund, which is not marketed to IFAs, is also at risk of measures to stem flows.

Hargreaves Lansdown senior analyst Meera Patel says 10 to 15 years ago, investors would not allocate more than 5 per cent of their portfolio to emerging markets.

She says that figure is now more likely to be 10 to 15 per cent as investors are recognising that growth is going to come from emerging markets rather than developed markets.

Patel says: “We are having to dig around to find other good Gem managers. We have been looking at funds from Eaton Vance, Comgest, JO Hambro and JP Morgan and considering whether any of the funds are suitable to include on the Wealth 150 list.”

Investment Quorum chief investment officer Peter Lowman says the firm holds the £2.2bn First State global emerging markets leaders fund and the £3bn Aberdeen emerging markets fund in client portfolios.

Lowman says: “We might have to look elsewhere as Aberdeen’s fund is now soft-closed. We could buy a passive emerging market tracker funds to get into the market cheaply.”


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