Ben Yearsley: Developing nations will need West's expertise
Saturday 26 June 2010
One of the most enjoyable aspects about working at Hargreaves Lansdown is getting to meet such a wide variety of fund managers. Of course, not all of them are worth investing in. Unfortunately some can't cut the mustard, and others run funds unsuitable for our clients. What is most exciting, though, is uncovering a relatively unknown manager at one of the smaller groups with a truly interesting fund. A prime example is the JM Finn Global Opportunities Fund managed by Anthony Eaton.
This is very much a "big picture", thematic fund, and the theme in question is relatively straightforward. Mr Eaton invests in companies set to benefit from global industrialisation and urbanisation. He believes demand for energy, infrastructure and commodities will be substantial in order for the developed world to maintain current levels of consumption. Add to this the rapid progress of developing nations (such as China, Brazil and India) and you have huge strain placed on the world's resources. This, he believes, will benefit firms able to supply the essential raw materials, goods and services that accompany urbanisation and economic growth.
You could in theory build exposure to this theme by combining infrastructure, commodities, emerging markets and energy funds. However, JM Finn Global Opportunities does it neatly for you and contains a diverse range of holdings, 165 in total. Rather than narrow the field down further, Mr Eaton takes the view that it is not worth trying to outsmart the market. Instead he prefers to reduce stock-specific risk and ensure his portfolio is well placed overall to benefit from the theme that he feels will dominate the investment world for the next decade.
This doesn't mean he thinks stock selection is irrelevant. In fact he places great emphasis on meeting company management and spends a lot of time travelling to visit firms in many different countries. For instance, he has recently returned from the Ukraine where he was seeing, among others, the management teams of 300,000-hectare farms. I have to be entirely honest and say I have no idea how big a 300,000 hectare farm is, but I'm guessing it is pretty large! The important point here is scale: the Soviet bureaucracy had many faults, but the decision to create huge farms has left the agricultural infrastructure in the former Soviet bloc at a competitive advantage to many farmers in developed Europe.
The core of the fund is based on commodity producers, infrastructure and industrials. You might think this makes it rather risky and, admittedly, it is entirely reliant on the world's economic growth. As such it had a poor year in 2008 when fears of global recession gripped the markets. However, there are also some more defensive, consumer names such as Coca-Cola and Colgate-Palmolive, who Mr Eaton believes will be beneficiaries of increased discretionary spending in emerging nations. Additionally, the majority of the holdings are large and liquid investments, many of which are essential kit for the industrial world and attractive global assets. Indeed Mr Eaton thinks a number of his holdings could be the subject of merger and acquisition activity in coming years, as China in particular looks to snap up some of these trophy assets.
In the Western world we take the basics of roads, railways and power for granted. Yet these are still aspirations for billions of people across the developing world. So too are the luxuries in life such as LCD TVs, mobile phones and fast cars. There has been a definite shift in wealth and power over the last two or three years as the credit crunch has hurt the West and countries such as China have become wealthier. However, many developing countries still need the expertise, resources, and products of long-established companies here in the West, and this fund is positioned to take advantage. If you are looking for a higher-risk, long-term holding, this could well fit the bill.
For more details about the funds included in this column, visit www.h-l.co.uk/independent
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