A new fund emerging
Introducing the Scottish Equitable Lazard Emerging Markets fund.
Up until now, emerging markets were lumped together in one, big homogenous blob from an investment perspective. Opportunities for the ordinary investor to invest in a particular emerging economy were few and far between. Most emerging market funds invested in a broad spread of countries or regions. The existence of such a wide-ranging emerging markets sector certainly gives the talented fund manager much to play with. But it also gives them quite a long rope with which to hang themselves.
In the past few years people have become familiar with the singling out of the world’s four largest emerging economies — the BRIC economies of Brazil, Russia, India and China — and even more recently with the identification of a ‘next 11’, including countries like South Korea and Mexico.
The risks of picking a single emerging market
Each emerging economy or region is unique, a fact that’s been underlined by the recent rash of fund launches focusing on individual countries or regions, from New Star’s Indian Equity fund to Fidelity’s EMEA (Emerging Europe, Middle East and Africa) fund.
But there are advantages and disadvantages in narrowing the investment universe to focus on one country or region. The advantage is the manager benefits from greater depth of research and knowledge of a particular market. The disadvantage is if a natural, political or economic disaster hits the country or region a fund’s investing in, there’s nowhere for the fund manager to go but down with the ship.
This is particularly evident when you look at the diagram below. This looks at the performance of individual emerging countries over the 10 calendar years to the end of 2007. There are several instances over that period when countries, including some of the BRIC economies, have moved from the top five to the bottom five the very next year. As you can see, in 1998 Russia was the bottom-performing country, with a return of -83.18%, and in 1999 it was the second-top performing, with a return of 258.28%, a staggering difference of 341.46%.
The benefits of letting the professionals pick the country
The diagram above tells us several things:
- Returns from the top-performing emerging markets have been spectacular over the past 10 years.
- Returns from the bottom-performing emerging markets have, at times, been equally spectacular.
- No single country has consistently outperformed.
- The BRIC economies have, on the whole, outperformed the non-BRIC ones. But equally, all except India has featured in the bottom-five performing emerging country indices in the past 10 calendar years.
Emerging markets have proved to be excellent long-term investments over the past 10 years. But the ever-lurking possibility of investing in a ‘submerging’ economy at any given point in time means that many investors may feel it’s safer to invest in a fund offering a broadly diversified portfolio managed by someone who knows what they’re doing.
We’re delighted to offer two emerging markets funds, the Scottish Equitable UBS Global Emerging Markets fund and the newly launched Scottish Equitable Lazard Emerging Markets fund. Both offer access to both BRIC and non-BRIC investment opportunities and are managed by long-established experts in this sector.
The Scottish Equitable Lazard Emerging Markets fund
Lazard is a long-standing investment partner and has consistently shown a firm commitment to its relationship with us. We’re therefore delighted to be adding another Lazard fund to our pensions and life fund ranges.
We believe the new fund offers investors a number of advantages:
- It allows access to a sector that’s produced excellent long-term returns over the past 10 years.
- It cuts down the risk involved in investing in one country or region alone.
- It’s A-rated by Old Broad Street Research (OBSR) for consistent outperformance and quality of process.*
- It offers excellent diversification from the more developed equity markets due to its relatively low correlation with those markets.
- It is, in itself, well diversified both geographically and across industrial sectors.
- It offers access to opportunities in both BRIC and non-BRIC countries.
Please remember that the value of any investments may go down as well as up. Past performance is no guarantee of future performance. Emerging markets funds typically experience higher short-term volatility than almost every other sector, so they should be seen as long-term investments and form part of a balanced portfolio. Cautious investors may not be willing to accept the greater risk of investing in this sector, particularly over shorter time periods.