Emerging markets specialist City of London is looking to overweight Asia and Latin America on a thre...
Emerging markets specialist City of London is looking to overweight Asia and Latin America on a three month view.
The move comes as it prepares to roll two of its unit trusts, the Emerging Markets Country Trust and the Emerging Asia Country Trust, into its Dublin-based Oeic fund, Emerging World, and pay IFA renewal commission for the first time.
City of London is to ask unit holders to vote on 25 July to allow the two funds to be closed in a move which will also see changes to the charging structure of the Oeic.
Paul Hyde, head of UK and European marketing at the group, said the Oeic will retain annual management fees of 1.5% for retail customers, but will have a new tier of charges of 1% per annum for institutional clients. The renewal commission will be 0.25% per year. Front end commission for IFAs of 3% remains.
The two unit trusts have seen large redemptions and between the end of February and the end of April total assets under management in the Emerging Markets Country Trust fell from £30.4m to £27.5m. The Emerging Asia Country Trust had fallen to less than £750,000 under management.
City of London group economist Michael Russell said that the three-month equity strategy for the Oeic was to overweight Asia and Latin America, with a bigger overweighting in Asia.
Russell's top down recommendations are implemented in the fund by Barry Olliff, who seeks out closed-end funds to invest in. The recommendations will see some changes from the group's current global emerging markets asset allocation of Asia at 65.2%, Latin America at 16.7%, cash at 7.1%, Europe at 2.4%, Middle East at 4.6%, Africa at 2.4% and miscellaneous at 1.6%.
Russell said: "The US economy is less important to Asian equities than is internal Asian demand because Asia trades more with itself than Latin America does. Long-term variables such as savings and investment are more plentiful in Asia than in Latin America so Asian output should be more sustainable than Latin American growth. Latin America has a current account deficit compared to a current account surplus for Asia, and Asia has more competitive exchange rates than Latin America."
In Russell's eyes that will lead to a deterioration in Latin American earnings growth compared to Asia as the US economy slows. Russell also believes that Asia has significant cyclical earnings growth stemming from last year's powerful economic recovery and the region's continuing structural changes.
He said the main risk to Asian equities is the potential for policy errors by the Japanese monetary authorities, which Russell believes should maintain the country's zero interest rate policy so as not to cut short economic recovery."
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