Emerging markets investments continue popularity Two new fund launches and record inflows
13 January 2011
Investing in the emerging markets continues to surge in popularity in the UK, with two new fund launches and record levels of investments pouring into developing countries.
The Investment Management Association (IMA) has reported that, for the second month running its Global Emerging Markets sector, which is the home to funds investing shares in emerging market companies, has seen record levels of investment. £337 million was invested in these funds in November 2010, following £366 million in October 2010.
Aberdeen enters Latin America
In line with the growing demand for emerging market investments, two asset management companies have launched new funds investing in developing nations.
Aberdeen Asset Management has launched the Aberdeen Latin American Equity fund. The fund will focus on regions like Brazil, Chile and Mexico. These countries are rich in natural resources and have been recording high economic growth in recent years, and the fund is looking to take advantage of the boom in Latin America.
Minimum investment in the fund is £500 or £50 per month, while the initial fee on the fund is 4.25% and annual management charge is 1.75%. These charges can eat into your returns so if you’re a sophisticated investor and want to invest in the fund without advice, you can significantly reduce the costs of investment by going to a discount broker.
Schroders looks to the Middle East
Meanwhile, Schroders Investment Management has launched the Frontier Markets Equity fund. The frontier markets are considered the new wave of emerging economies beyond the established emerging markets like those in the Asia Pacific and Eastern Europe. The fund’s core areas of investment will focus on Qatar, UAE, Argentina, Oman and Saudi Arabia.
The annual management charge is 1.5% and minimum investment is 1,000 Euros. Remember that the annual management charge is not the maximum annual charge you will pay for an investment fund – the total expense ratio (which is not available for either of the funds at the time of writing) is a more accurate reflection of annual cost.
Why is emerging market investment so popular at the moment?
The past decade has not been kind to the advanced economies like the UK and US. There have been three stock market crashes in the past 10 years, and the return on equities (shares in companies) has been much poorer than before.
Emerging markets, however, have been growing rapidly, and their governments have made lots of changes to increase the appeal of investing. This has delivered big returns – the MSCI Emerging Markets index, which tracks the performance of equities in emerging markets, has returned 15.7% annually over the past 10 years.
Similarly, with interest rates so low in the West, lots of money is now being poured into developing countries in search of higher returns.
But what are the risks of investing in emerging markets?
Equities in these regions are much more volatile than in developed markets such as the UK, and can experience significant swings in value. Additionally, political and civil unrest can destabilise economies in emerging countries.
There are fears that the large inflows of investment into emerging markets could create a bubble in certain regions. The concern is that investors will be placing their money at the top of the market and a crash could cause those that are piling in to lose their money.
It’s vital that you seek independent advice whenever you decide to invest. A financial adviser can help you decide your attitude to risk and make the right decisions for your financial goals. Read our guide to finding a financial adviser.
For an in-depth look at investing in emerging markets, check the March edition of Which? Money, published at the end of February.
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