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Three funds to play the theme of emerging market consumers
Simon Wood of Scottish Widows Investment Partnership discusses three funds on his radar, all seeking to exploit growing consumer spending in emerging markets.
Simon Wood of Scottish Widows Investment Partnership (SWIP) discusses three funds on his radar, all seeking to exploit growing consumer spending in emerging markets.
It looks like an obvious investment strategy: find out what people are buying and then try and invest in this consumer trend. But there aren't many fund managers tapping into 'consumer trends' and even fewer who focus specifically on emerging market consumers.
Simon Wood, co-manager of SWIP Multi-Manager Diversity fund, said funds invested in emerging markets consumer trends were the ones he was most likely to buy next: ‘It’s a very convincing story but whether we add it yet I’m not quite sure. We’d have to think about what to take out.’
Wood, whose fund is in Citywire Selection - our hotlist of best investment ideas - said he was interested in three funds in particular.
The first was the Nordea 1 Emerging Consumer fund which is the only one which focuses specifically on emerging markets consumers. The fund was launched in 2008 and has delivered a 19.5% return over the last year.
Like some of its rivals, the fund taps into emerging markets consumer trends via big western brands. However, fund manager Leon Svejgaard Pedersen also gets his hands dirty with direct investments into local markets. In its last fund update he said that luxury western brands had bolstered his fund's performance while some of his more experimental forays had been problematic.
The €458 million fund has 23% of its cash invested in US-based companies and 13% in Switzerland and the biggest contributors to its performance in November were Richemont and Swatch. It has since 'reduced exposure to the 'luxury' strategy due to strong performance and prices.'
Despite this, nearly 40% of the fund is invested in local emerging market companies. In November Pedersen said that some of these local investments had run into problems such as possible changes to microfinance regulation and concerns over mortgage lending in India had hit a couple of his investments.
In comparison JPM Global Consumer Trends , which is also under consideration by Wood, has just 15% invested directly into emerging markets via stock markets in China and Hong Kong. The fund, which was launched in 2008, has a broader remit than Nordea and this allows it to include consumer trends in developed markets as well as emerging markets.
The fund has returned 20% in the last year. Manager Peter Kirkman said that the key skill was to spot companies that are set up to benefit from particular consumer trends rather than which consumers have the cash. His fund has invested in Zimmer frames in Japan and nappies in China and recently highlighted a health trend which could see consumers in emerging markets turning to branded medical drugs. Kirkman believes that Western companies like GlaxoSmithKline will be the real beneficiaries of this medical emerging market demand.
It is much older than its JPM and Nordea peers having launched in 1973 and has been managed by Citywire AA rated Graham French for the last 10 years. The fund has a broader remit and investing in general trends, not just consumers. The fund essentially focuses on companies that either extract raw materials or convert them into products and services.
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