Investing Knowledge |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Build a global portfolio By Alison Swersky
Despite being battered by the huge stockmarket falls at the turn of the millennium, investors - who wouldn't have touched a standard UK growth fund three years ago - are now in thrall to emerging markets. Specialist More money flowed into emerging markets in the first two-and-a-half months of last year than in the whole of 2005, says Bambos Hambi, head of multi-manager funds at Gartmore Investment Management. "Markets ride on fear and greed. It's human psychology to back things that are doing well," he adds. The US tightened monetary policy last year, fuelling fears of a global economic slowdown. However, Chinese shares listed in Hong Kong almost doubled in value. India's Sensex finished up 46% as economic expansion beat expectations. And, despite falling energy prices, the S&P/Citi BMI Russia index returned 40.79% - a testament to the rising significance of the Russian consumer. By comparison, the FTSE 100's perfectly adequate 11% return seems a little pale. Hot money Most IFAs advise against allocating more than 5%-10% of your portfolio to developing economies and of the dangers of limiting your investments to just one country or region, or even to a basket of countries - as happens when investment houses use BRIC funds to try to capture the dynamic growth prospects expected in Brazil, Russia, India and China. These emerging economies currently account for less than 3% of global equity markets, but it is predicted that their combined wealth will grow exponentially over the next 50 years. However, multi-manager boutique T Bailey Asset Management warns that you only need two countries not to live up to expectations for a BRIC fund to look decidedly dangerous. Watering down your risk T Bailey believes it's more sensible to build a balanced portfolio spread across the globe. Jason Britton, manager of the firm's Growth fund favours funds where the manager can weave dexterously between stocks, sectors and countries, depending on the available opportunities. Britton's fund of funds currently holds Thames River Global Emerging Markets, managed by Martin Taylor. He singles out Hugh Young's Aberdeen Emerging Markets, which has more than doubled initial investment over three years and is first in its sector over seven years; and First State Global Emerging Markets run by Angus Tulloch for consistently positive results over the long term. Both these managers are responsible for their respective firms' Asia Pacific (ex-Japan) offerings, which are touted as one-stop shops for exposure to the region. They pick companies with a strong cashflow and established market presence - a sensible approach in this higher-risk environment. Staying at home It is also advisable for UK investors to hold the largest portion of their equity investments in their home market. "If you know anything about markets, it's the one you'll understand best, and investing here reduces currency risk as liabilities will be in sterling," explains Justin Modray, an investment adviser at Bestinvest. "If you invest in the US, either directly through shares or via a fund, if the dollar's weak it will be bad news for UK investors." For example, while the S&P 500 was up 16.43% to 15 December 2006 in dollars, it was up just 2.43% in sterling terms. If you're a cautious investor, Modray advises spreading between two funds and holding as much as 55% of your equity asset allocation in the UK - 40% if you are more adventurous. He suggests an index tracker combined with a good fund able to take active, big bets away from the index to counter the risk. He picks out the low-cost Fidelity MoneyBuilder UK Index fund, with annual charges of 0.3%, and the £1.4 billion AXA Framlington UK Select Opportunities fund, which over three years to 1 December 2006 has turned £100 into £170.80. Tim Cockerill highlights the low-cost M&G index-trackers as potential core holdings, but generally prefers actively managed funds that can beat the index. He suggests an equity income fund, which invests in established or out-of-favour companies paying high dividends. He also recommends James Frost's Artemis Income fund or JO Hambro's Capital Management fund run by Clive Beagles, which grew by more than £100 million in the fourth quarter of 2006. If you don't want the income, reinvesting the dividend can massively enhance capital growth. One of the most highly regarded managers, Neil Woodford, custodian of the £7 billion plus Invesco Perpetual High Income fund, topped Europe's largest money managers in 2006. He returned 27% to his investors by having substantial holdings in defensive gas and water utilities and tobacco stocks, and so managed to steer around the mid-year market carnage. Over the past few months, Woodford has increased the fund's weighting in cheaply valued mega-cap stocks, such as Vodafone (VOD), GlaxoSmithKline (GSK) and BP (BP-A), preparing for weaker-than-expected domestic and global economies. While most of his peers are shunning the much-hyped debt-ridden consumer, Beagles remains heavily invested in UK's general retailers, especially electrical shops such as DSG (DSGI), and banks. Second home for your cash As for UK equities, Beagles believes the market is only two-thirds of the way into a five-year rally, despite almost doubling from its low point in 2003. Once you have a core holding in the UK, most experts recommend looking to Europe or the US. When it comes to the US, many experts suggest buying into the index (the S&P 500), although if you'd rather have an actively managed fund, Paul Illott, senior investment adviser at Bates Investment Services, says Martin Currie North America is a good bet. At the beginning of 2006 most experts were predicting another storming year for Japan, yet Melchior Japan Opportunities, up 87% in 2005, closed down 28.75% by the end of the year. Many other Japanese funds did far worse. Global equity funds If you don't have the experience or confidence to single out the best fund managers, an alternative is to invest in a global equity. If you are a conservative investor with not much money to spread around, Illott suggests the Fidelity WealthBuilder fund of funds. This has about 40% invested in the UK and a quarter in the US, which is fairly static. A punchier alternative to the Fidelity fund, Jupiter Global Managed will make big asset allocation calls and has performed exceptionally next to its benchmark. However, if you already have a UK equity fund and want to avoid duplicating the risk, Modray suggests a fund like Artemis Global Growth, ranking 10th out of 124 funds over three years to December.
Interactive Investor Self-Select ISA • Buy shares and investment trusts from £1.50 • Over 1,300 funds, with low initial charges (save up to 80%) • Buy online or by phone
Visit the ISA centre today
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Send Article by Email