Can investors make a mint on the Mints?
Weigh the risks before putting money into Mexico, Indonesia, Nigeria and Turkey
Sunday 08 May 2011
Once Brics were the hottest way to build up a successful investment portfolio, but now private investors are being urged to suck on a Mint for a taste of overseas markets.
The impressive economic performance of Brazil, Russia, India and China has meant that anyone investing in them 10 years ago would have made decent returns. Now analysts at the fund manager Fidelity International say serious long-term investors should spread their net further into the likes of Mexico, Indonesia, Nigeria and Turkey. The markets across these countries have risen 117 per cent since 2002, compared with a 47 per cent rise across Europe.
But before you rush out to buy your stocks, Tom Stevenson, the investment director at Fidelity, cautions: "For all emerging markets, investors need to consider the associated risk factors. Recent instability in the Middle East and North Africa has highlighted the higher susceptibility to political risk, in particular. The task, therefore, is to find those countries and assets that offer sufficiently high returns that adequately compensate for the level of risk being taken."
And the risks can be huge, with some emerging market investments plunging 60 per cent in recent years. "Investors need to know they have the stomach for such losses," says Liam Shiels, a financial planner at the wealth-management firm KMD. "Even for an aggressive investor, we recommend only about 8 per cent of a portfolio should be in specific emerging market funds. The lure of short-term gains is not investing, it's speculating."
The in-depth knowledge needed on countries not necessarily known for corporate transparency may be the biggest hurdle for private investors. Extensive research is needed, for which most will have neither the means nor inclination, according to Meena Lakshmanan, of Vestra Wealth. "The GDP of a country does not necessarily reflect the stock market. Based on GDP, China is the second-largest economy, but the quality of its companies is not necessarily that high. This is why a fund is a better buy than a single stock from a country where corporate governance, accounting cycles and regulatory issues are all different from those in developed markets."
Mr Shiels favours using index funds, such as the Dimensional Emerging Markets Core, as they offer the same advantages whether focused on developed or emerging countries. "You will get access to companies that will go to the moon to compensate for those that don't," he says.
One way to gain exposure is through an emerging markets fund or investment trust. There are several dozen to choose from, as well as more specialist regional funds, such as Latin American funds, or single-country funds, such as those investing in China or India. There are also Exchange Traded Funds which allow investors to access countries' equity markets with a single fund. Like a mutual, ETFs are based on a basket of stocks giving a level diversity that can help mitigate risk. But, unlike a mutual fund, they can be traded on an exchange. They also have relatively low costs and a beneficial tax status.
One fund that uses ETFs to access both emerging and "frontier" markets is the Ignis International Emerging Markets Select Value Fund, which is actively managed by James Smith. He invests, in the main, in countries rather than stocks, according to the value of their markets, buying when they are at the cheapest and with the flexibility to move quickly as prices rise and the country becomes "toppy". Mr Smith says this helps mitigate risk as he is buying into the cheapest markets, waiting for the high-flyers to correct downwards, while his "plodders" are rising. Countries are ranked according to capital, growth, earnings, but also by more subjective issues such as social stability. "My team have found that the majority of the variance in emerging market stock prices can be attributed to overall market conditions, and in particular how the market perceives the country," says Mr Smith.
Currency is another option. "We like some of the emerging currencies," says Philip Poole, of HSBC Global Asset Management. "We expect them to appreciate against currencies of the developed world, including sterling. Fixed income markets through debt funds get a much higher yield as interest rates are so low in the developed markets."
The advantage of debt funds is that they tend to be less risky, and the invested capital is protected. But, as always, less risk can mean smaller gains.
Low-risk investors can dip a toe in emerging markets from home. The FTSE 100 is top heavy with firms which draw most of their profits from abroad. BP, the big banks and most of the world's oil and mining companies are listed in London, and with the promise of commodities giant Glencore joining this year, exposure to new markets is huge. Only last week, Diageo announced strong sales, thanks to a buoyant market for its whisky and gin in regions such as Asia, Latin America and Africa, which offset a weakened Europe.
But for those who can take the threat of loss on the chin, Fidelity's Mr Stevenson has a few words of hope: "Finding the next group of countries that can compare with Brics in terms of scale is a virtually impossible task, but Mints may just have the potential to be as rewarding for investors over the next 10 years as Brics have been in the past 10."
Questions of Cash: Bupa costs bore no relation to what I'd been quoted
Five Questions On: Pensions advice
Problem gambling: Amid heavy advertising and a surge in remote sports betting, more and more 16 to 24-year-olds are now seen as 'at risk'
Gardens add a tenth to the value of your home
Simon Read: Retirement advice is good - if it's impartial
- 1 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 2 Students offered grants if they tweet pro-Israeli propaganda
- 3 Satellite full of sexually experimental geckos adrift in space, Russia loses control of mission
- 4 Exclusive: Cameron’s Big Society in tatters as charity watchdog launches investigation into claims of Government funding misuse
- 5 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
A day in the life of Vladimir Putin: The dictator in his labyrinth
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
iJobs Money & Business
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar