Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
ASIA and Emerging Markets can be a tricky nut to crack. As asset classes go, this one looks somewhat artificial - the investment opportunities here can diverge massively, from the world’s second largest economy in China to the small but fast growing economies of Latin America.
What’s supposed to unify them all is the relative youth of their economies, meaning investors in these regions expose themselves to higher growth potential but also greater volatility than they typically find in developed markets.
That means these can be exciting regions to invest in, but come with risk. It’s in areas like these where drawing on the insight of an active fund manager can be particularly helpful.
Our Select 50 range of favourite investments features three funds which invest in Asia and Emerging Markets. Each has their own unique approach to investing in this market.
One to build around - Fidelity Funds - Asian Special Situations
This fund looks to offer investors a ‘core’ exposure to Asian markets. Core funds are typically benchmark aware, meaning they will give investors good all-round access to the market they’re operating in, unlike other funds which may pursue more niche strategies.
As well as offering investors a broad-based, style-natural exposure to the region, this fund should result in limited volatility when compared with other strategies and help the fund perform well across market cycles.
At the same time, the fund is not constrained by its benchmark. There are over 1,000 companies across the index - this fund features 69 at time of writing. It’s up to the manager to pick and choose where he sees the best potential to generate returns.
The manager prefers companies which look set to deliver rising earnings long into the future, regardless of the economic conditions. Particularly he likes those that have established themselves as global leaders through technology, scale or cost structure, and offer strong franchises that benefit from long-term structural drivers.
Sustainable approach to the regions’ “leaders” - Stewart Investors Asia Pacific Leaders Sustainability
This conservatively managed fund relies on a highly experienced team to select high-quality, mid to large-sized companies which are most likely to generate long-term outperformance across the region.
For fund managers David Gait and Sashi Reddy, sustainability is a key consideration in their stock-selection process. They look to invest in companies purposefully working for the good of the environment and the global community.
This approach draws the managers to companies which stand out for their ‘social usefulness’ - i.e. ones that provide goods or services that society actually needs, and so stand to benefit from rising consumption levels across the region.
Broader economic developments too are taken into consideration, but the focus here lies on high quality management, robust balance sheets, and high levels of capital preservation. Though this may not be a fund to soar through market highs, the managers’ conservative approach should position it well to perform through downturns.
Size isn’t everything - Fidelity Funds - Asian Smaller Companies
The Fidelity Asian Smaller Companies fund offers something different from the rest. Like the names suggests, this fund concentrates on the regions’ smaller companies.
Smaller companies have always been attractive to investors for their growth prospects. Where large companies may have only so much further to climb, smaller ones have more room ahead to deliver booster returns.
The flipside is that smaller companies can be riskier than their larger, better established counterparts.
This fund looks at smaller companies through a different lens. Its manager, Nitin Bajaj is a value investor, meaning he looks to find companies whose price does not reflect their true value. He believes emerging markets are ripe hunting grounds for such valuation anomalies, given the lack of research into smaller companies.
As such, this fund makes a good option for someone looking for a value approach to these markets which may offer something slightly different from the norm.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. The Fidelity Funds - Asian Special Situations Fund and Stewart Investors Asia Pacific Leaders Sustainability Fund invest in a relatively small number of companies so may carry more risk than funds that are more diversified. The Fidelity Funds Asian Smaller Companies Fund invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. Before you invest in a fund, please ensure you have read Doing Business with Fidelity and the Key Information Document (KID). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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