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Go global for growth in 2008
By Fiona Hamilton
Private investors are running scared, with more leaving unitised funds than buying into them for the first time ever in November 2007. Professional investors are also worried about the ongoing effects of the credit crunch, and the rising oil price has exacerbated their concerns, although many still hope to make money in 2008.
Henderson Global Investors, for instance, expects global economic growth to weaken, but thinks the Federal Reserve will slash interest rates sufficiently to ward off a recession. It therefore expects stockmarkets to continue to push ahead, but more slowly than before, and with plenty of volatility along the way. HSBC similarly believes that continuing expansion in emerging markets should be sufficient to pull the rest of the world along.
David Kiddie, who heads the equities team at ABN AMRO, says: "There is a lot of talk about risk aversion, fear and gloom, but that can also provide opportunities when investing in equities."
Kiddie expects high single figure returns from stockmarkets in 2008, with emerging markets leading the way, but warns that after five consecutive years of positive returns good share selection will be more important than ever. "The opportunities are rarer and it is important to pick the right manager who can pick the right stocks."
UK lagging behind
UK investors tend to focus mainly on the UK stockmarket, but this can be a mistake, as the Global Emerging Markets, Europe, and the Far East excluding Japan sectors have all been far more rewarding over the last five years. It is hard to predict the best markets over the next five, but backing a Global Growth fund delegates that decision to the manager.
M&G Global Basics won the best Global Growth fund category in the Moneywise fund awards in both 2006 and 2007. Managed since 1995 by Graham French, it invests in companies providing products and services which are rarely out of demand, such as food, mining, construction, energy and manufacturing. It has done well in the last couple of years from mining and metal companies, and these still account for around 38% of the portfolio.
M&G Global Leaders concentrates on companies which are leaders in their field, regardless of sector, size, or country. Its portfolio is well spread, with the top ten holdings accounting for less than 20%, and its main sector exposures are industrials, oil & gas, and financials. Like its Global Basics counterpart, it has relatively little in emerging markets. Instead it has around 32% in the US, and 14% in Japan.
Neptune Global Equities has been rewarded for being much bolder and braver on the emerging markets front. They still account for around 40% of the portfolio, as manager Robin Geffen believes emerging markets will continue to dominate growth. However, he stresses the need to be increasingly selective. Russia is currently one of his favourite markets, as it had a relatively quiet 2007, and he is also bullish about some Hong Kong-quoted Chinese shares.
Belief in emerging markets
Geffen's continuing support for the materials and energy sectors is another reflection of his continuing belief in the emerging markets story. Again, however, he is increasingly picky, with the emphasis currently on palladium, platinum and coal. Tesco (TSCO) is one of his few UK holdings, but he has added AstraZeneca (AZN) and Glaxo (GSK) in the hope that the bad news on the two pharmaceutical giants is priced in. He expects the oil price to reach $120, but sees better ways to gain exposure than BP (BP-) and Royal Dutch Shell (RDSB).
Geffen's commitment to an actively managed and concentrated portfolio is risky, but has worked brilliantly so far. In contrast, THS International Growth & Value has been less spectacular, but could be a better bet for the cautious investor. Joint manager Mark Evans says: "We only buy when we can be confident of at least getting our money back, so our clients can sleep well at night."
THS favours a thematic approach. For instance, it has done well from backing Western companies which were capitalising on emerging markets growth, and has played the ever growing demand for healthcare by focusing on pharmaceutical distributors rather than the beleaguered drug companies. Its latest theme is financials, as it feels many European and Japanese financial companies have been unfairly knocked by the problems of their US and UK counterparts.
"We think emerging economies will continue to pull the world economy along, but we doubt they will continue to set the pace in stock market terms, as we feel the easy money has been made," Evans says. "We are quietly positive about the outlook, looking for individual stories, and trying not to get dragged into fashionable areas."
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