Fund of the Week: Contrarian punts in emerging markets
May 18, 2012
While most emerging-markets fund strategies fell apart in 2011 (the MSCI index dropped 18%), the Somerset Capital Emerging Market Dividend Growth Fund lost only 6%. That put it in the top decile in its sector over one year. Since launch in March 2010, the fund is up 13% while the wider sector is down 1%. Why?
One reason is that manager Edward Lam “is usually a long way from consensus positions”, says Patrick Collinson in Fund Strategy. So while Lam sees problems in China, where he is “positioned for a hard landing”, South Africa’s relative unpopularity means there’s value to be found. “Stocks in South Africa, such as Shoprite and Tiger Brands, are trading on price/earnings ratios of ten to 15 compared with 30-plus in BRIC countries,” he notes. “South Africa has for a long time been the consensus underweight emerging market. I like that, as I can find [many high-quality firms here] with decent growth potential.”
While the £55m fund invests in 17 countries from Brazil to Korea, the portfolio holds only 40 stocks. Lam picks these using a three-stage selection process: he looks at liquidity, dividend yield and financial stability. He likes to mix reliable dividend payers with higher-growth stocks. Markets are still “dangerous”, he tells Citywire, but after losses in emerging stockmarkets last year, “there’s every chance of a... strong rally”.
For investors the lowish 1% annual charge is an added bonus. And given its managers are required to put a certain amount of their income back into the fund, preserving investors’ capital is likely to remain a priority.
Contact: 020-7499 1815.
|Name of holding||% of assets|
|Siam Commercial Bank (F)
|AAC Technologies Holdings
|The Foschini Group Ltd
|National Bank of Abu Dhabi
|Souza Cruz SA
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