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The developing picture

Last week was busy – and I don’t just mean because of the inflation figures and the Bank of England’s quarterly inflation report.

As well as all the usual elements of a busy working week for someone who laughingly calls himself “semi-retired”, I found myself chairing a round table discussion for Cofunds and moderating a webinar on closed-ended funds. With a wealth of interesting information emerging on both days, I will confine my comments on this occasion to the round table.

The topic was the broad one of global growth. Given that demand for these funds has been rising on the Cofunds platform (this IMA sector had a record January, accounting for 13 per cent of net sales – nearly double the recent average), it seemed an appropriate time to discuss their merits.

To give the managers’ viewpoint were Investec’s Mark Breedon and Threadneedle head of global equities Jeremy Podger In the IFA corner was Patrick Connolly from Chase de Vere.

It is usual to circulate some ideas for discussion ahead of the event and, with the situation in Egypt developing on a daily basis, the outlook for so-called frontier markets seemed a good starting point. But by the time we were all sitting around the table, matters had moved swiftly to an apparent conclusion over there.

Not that this made determining what might happen in the future any easier. About the only real message to emerge was that the switch from emerging to developed markets had accelerated as a consequence.

This is where such discussions can be useful in putting global markets into some sort of context. No one doubts that it is within the developing nations that the best opportunities for growth exist but this does not mean that piling into those companies based in these countries willy-nilly is the best approach.

Perhaps it was fortunate that on the day of the round table discussion, Heineken had announced a stunning set of results but growth had come from emerging markets for this European brewer.

Indeed, the maturing of the baby boomer generation in Europe is dampening demand for Heineken’s products. It became clear that the experienced fund managers present believe that most consumer businesses of any size had already concluded that emerging markets are the battlegrounds in which to fight. The result, of course, is that the market place has become crowded and competitive.

There are winners, though. Mark Breedon, who runs the Investec global free enterprise fund, said he believes that the stockpicker’s job is to identify those companies most likely to succeed and to avoid the laggards. Pushed for selecting where the best opportunities lie, he chose Russia and mobile internet as exciting areas.

Jeremy Podger had already stated the case for technology in general but also cited luxury goods as a growth area.

But it was in the area of global income generation that some of the most interesting comments emerged.

According to Michelle Woodburn of Cofunds, by far and away the best sellers in this sector are the income-focused funds, with M&G and Newton leading the field, much to the chagrin of Jeremy Podger on Threadneedle, who claim top slot in recent performance terms with their offerings in this field.

Yet, according to OBSR’s Ruli Viljoen, even though this sub-sector has more than doubled over the past year, it is still dwarfed by UK equity income.

Income generation from overseas markets happened to be core to the discussion at the webinar in which I was involved later that week. With whole sectors of the UK market having cut or suspended dividend payouts, such as the banks and BP, the long held belief that income on leading domestic shares could only rise has received a severe setback. So income from abroad is looking more secure and increasingly attractive. But that is a story in its own right.

Brian Tora is an associate with investment managers JM Finn & Co


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