The global emerging markets funds that have performed well throughout 2002 have had overweight posit...
The global emerging markets funds that have performed well throughout 2002 have had overweight positions in Russia, Eastern Europe, Turkey and Asia. Only small gains were made in Latin America.
The best performing fund of the past 12 months was the Emerging Value Opportunities fund, with a return for the year of 93.95%.
Philipp Haas, investment director at Emerging Value Asset Management, says the portfolio has performed well due to its positions in Russia, Slovakia, Czech Republic and Turkey.
At the beginning of the year, the portfolio had an overweight position in Russia. Haas favoured the country because of the strong oil price and improved corporate governance situation.
However, in the summer, Haas believed Russia was overvalued and started to take profits from stocks. The portfolio concentrated its exposure in Slovakia and the Czech Republic.
These two countries are expected to converge with the EU in the next two years. He says valuation for stocks in these countries are low and will increase when they join the EU.
At the end of October, the portfolio took a big position in Turkey. Haas expects improvement in the country since the election and there has been talk that the country will join the EU. Haas bought a big position in Turkish real estate company Alarko. He recommends this company as it has no debt.
The fund also escaped the Latin America crisis and only had an underweight position in this area. Haas says he foresaw the Argentina crisis and the Brazilian political and economic difficulty.
The AIG Emerging Europe Equity fund was ranked number two in the sector. It had a performance return of 27.35%.
David Molnar, head of Emerging Markets Europe at AIG Private Bank, says the success of the portfolio has been attributed to its overweight position in Russia.
Molnar favoured mobile phone companies in Russia. He says there is a high growth and penetration rate for mobile phones. In addition, pre-paid mobile phones have now become competitive with fixed line. The Forsyth Global Emerging Markets portfolio was ranked number seven with a performance return of 16.71%. Rossen Djounov, managing director of investment research at Forsyth Partners, says the Global Emerging Markets fund performed well due to its key position in Eastern Europe.
The fund is a long-only fund of funds and Forsyth Partners selects funds in the portfolio using a themed approach. Managers are visited and funds performances are compared with the rest of the peer group.
The success in Eastern Europe can be attributed to the Russian Prosperity fund and the Thames River Eastern Europe portfolio.
According to Djounov the situation in Russia has been improving economically and politically. There are more and more investments flowing back into the country. Russian bonds have rallied this year and gains have supported valuations in the equity markets. Djounov expects an upgrade in Russian debt by the ratings agency.
The fund has also been overweight in Asia throughout the year. He says there was a perception that the US interest rate cuts would bring an economic rebound in the Far East. For the first quarter of 2002 the portfolio was overweight in funds that held export companies in Korea and Thailand. However, from the second quarter the portfolio held funds that invested in growth domestic stocks.
Djounov says the portfolio decided to focus on Asian funds that had a large exposure to domestic firms because the export companies had seen inventories rebuilt and realised the economy was too weak to sustain it.
Funds that performed well for the portfolio were the Invesco Asia Enterprise which focused on small companies and the Invesco Asian Equity Core which is more general. Similarly, this portfolio escaped the Latin America crisis and had an underweight position. Funds invested in this region included the Morgan Stanley Latin American Equity and the Gartmore Latin America portfolio.
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