ISA INVESTING TIPS: Emerging market funds and investment trusts

If you want emerging market funds to add some worldwide flair to your investments, read This is Money’s experts’ recommendations.

From
the bafflingly wide range, they have picked some ideas to use as
starting points for what will hopefully be successful investing.

Of

course, which fund is best for you depends on your individual
circumstances and what investing story you think will unfold. So, always
do your own research, choose your investments carefully and hopefully
you will make your own good investing luck.

On the up: Emerging markets such as Brazil are where much of the world’s growth is expected to be over future years.

How to use our fund and investment trust ideas

This is Money asks our panel of experts to suggest investments for a variety of investors.


These are people with a long
history in the investment field and looking at their choices gives you
some pointers. But remember, these are just ideas and whether a particular fund is right for you is your own
decision and making that requires deeper research.

Their
ideas are suitable for investors opting to use an Isa wrapper or not.
Go to the bottom of the page to find out why we like investing through
an Isa.

Read the tips, follow the links to the funds’ performance and read This is Money’s Investing section to gather ideas. If you have any doubts, talk to an IFA [find an adviser].





Why emerging markets?



Emerging markets is a broad term. It can cover everything from big hitting China and Brazil, to up-and-coming Indonesia and onto the new investing frontiers of Africa.


The lure for investors is greater growth and younger economies than typically found in the developed West and emerging markets have delivered strongly on this over the past decade.


The trade-off for this growth is higher volatility and more risk. Emerging markets investments tend to get punished in the short-term when turbulent times hit, in the long-run though they are tipped to outperform.


Many investors consider emerging markets funds an essential part of their portfolio, but experts say they would be very wise not to stick their house on them.


The case for emerging markets is that these strong growth economies are one of the best long-term bets around, especially for those making regular investments using their annual tax-free Isa allowance.


But remember emerging markets success is not guaranteed and never put all your eggs in one basket. It is also worth remembering that risk varies throughout this broad category, an overall emerging markets fund will be spread across a variety of countries and continents, others are region, country or sector specific.

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The expert’s emerging markets fund ideas

Damien Fahy of MoneytotheMasses.com recommends:  Jupiter India

Ongoing charges: 1.09 per cent

Yield: 0.10 per cent

He explains: ‘While India hasn’t been immune to the negative sentiment surrounding emerging market equities it has fared better than many of its peers. In addition, Indian equities are not tightly correlated to either developed or emerging market equities.

‘This is in part a result of the sweeping changes that have occurred in India’s political and financial system over the last 2 years, thanks to Narendra Modi’s majority pro-growth Government. India’s politics have historically been a messy tangle of inter-state politics with each elected State historically putting self interest over national unity

‘Modi has tackled this by giving individual Indian states more autonomy which has led to states wanting to be more competitive, particularly for foreign investment, rather than being merely obstructive. If you go to any major UK airport, such as Heathrow, you will now see billboards from individual Indian states claiming to be an ‘investor’s paradise

‘Reform is never easy, but as the pace of reform accelerated so too did the Indian stock market. Still, the pace of reform has not been fast enough for some.

‘While other emerging markets have struggled with commodity prices, particularly the fall in the price of oil, India is different. India imports 80% of its oil, so is unlike other emerging markets that are net exporters rather than importers. Analysts estimate that if oil stays below or around $50 a barrel it will boost economic growth by 1% a year (India’s economy currently grows at an eye-watering rate of around 7.5% a year).

‘Clearly investing in India is an indirect bet on a low oil price given its position as a global consumer rather than producer. If you believe the price of oil is about to rocket then clearly you wouldn’t necessarily want to be left holding Indian equities.

‘Investors wanting direct exposure to Indian equities could look at Jupiter India. Those investing must be comfortable with volatility, which is greater than some its peers due to it investing across the market cap spectrum, and also have a long term view.’


Adrian Lowcock, head of investing for Axa Wealth, highlights: JPM Emerging Markets Income

Ongoing charges: 0.93 per cent

Yield: 5.6 per cent

This fund invests in shares of emerging market companies. Big regional exposures include Taiwan, South Africa and Hong Kong.

Mr Lowcock says: ‘Manager Richard Titherington’s focus is on the future, where earnings and profitability will be in five years’ time, not currently. He holds between 50 and 80 companies with about 60 per cent invested in companies that yield 3 per cent and can grow their dividends, 20 per cent in low yielding companies with significant potential to grow their dividends and the remaining 20 per cent in high yielding companies with dividends over 6 per cent. This diversification means the fund is able to deliver a combination of an attractive growing dividend and capital growth. 

Adrian Lowcock, head of investing for Axa Wealth, also highlights: Fidelity Emerging Markets

Ongoing charges: 1.1 per cent

Yield: 0 per cent

This fund invests in companies listed or operating in a number of emerging markets.

You will find investments in India, South Africa and companies listed in the United States, but conduct business in emerging markets.

Mr Lowcock says: ‘This fund is a best of breed portfolio with a concentrated fund. Manager Nick price focuses on investing in good companies at the right price. He is looking for companies able to deliver strong growth and higher return on investment. Price has favoured South Africa and Sub-Sahara where he sees clear growth opportunities as the region develops. This fund is more suitable for investors willing to take on risk as it is likely to be more volatile.’

 

Darius McDermott, of Chelsea Financial Services, highlights Lazard Emerging Markets

Ongoing charges: 1.08 per cent

Yield: 2.1 per cent

This fund looks for the ‘global brands of tomorrow’ in emerging markets.

It has regional exposure to Asia, Latin America, emerging European markets and Africa.

Mr McDermott says: ‘Many leading global brands are now emerging market companies and this fund uses a 230-strong team of investment analysts to identify the global brands of tomorrow in these developing regions.

‘The managers take a bottom-up, stock-picking approach to achieve this and use market volatility created by macroeconomic concerns to time entry and exit opportunities. This strong value discipline has led to this being one of the stand-out funds in its sector.’

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