Investors hear a lot about emerging markets and how these markets should be included in their portfolios. Here are a few interesting numbers that tell the story.
The MSCI Emerging Markets Index has grown from the equivalent of 1 per cent to 13 per cent of the MSCI All Country World Index (ACWI) in a little over 20 years.
Over these two decades, the MSCI Emerging Markets Index has returned 818 per cent, which equates to a yearly return of 10.4 per cent.
The total free float market capitalisation of the MSCI EM has gone from $US52bn in 1998 to just under $US3 trillion ($3.32 trillion). The BRICs (Brazil, Russia, India, China) represent 48.9 per cent of the MSCI EM index, with China accounting for 19 per cent of the total market cap.
Despite this, the average superfund is still underweight emerging market holdings. The typical retirement fund currently invests a mere 5 per cent of its total assets in emerging markets.
When the Index was formed in 1988 it covered 10 countries – it now covers 21. These are (in order of weighting) China, Brazil, Korea, Taiwan, India, South Africa, Russia, Mexico, Malaysia, Indonesia, Turkey, Chile, Thailand, Poland, Colombia, Peru, Egypt, The Philippines, Czech Republic, Hungary and Morocco. Countries such as Portugal (1997), Greece (2001), and Israel (2010) have all ’emerged’ into the developed MSCI World indices.
The Fidelity Global Equities Fund currently has some 14 per cent of its holdings invested directly in emerging markets such as China, Indonesia, South Africa, Brazil and Mexico – as well as indirectly. The fund’s exposure to emerging markets is diversified across a multitude of sectors.
The recent volatility and, in particular, the underperformance of markets such as China have provided us with the opportunity to build small positions in an array of attractive businesses set to benefit from rising disposable incomes in promising emerging economies.
Our holdings are primarily consumer-oriented businesses ranging from banks to insurance brokers, property developers, watch manufacturers, supermarket chains, mobile phone operators, laboratory chains, gaming companies and internet related firms.
The fund has significant indirect exposure via holdings in stocks that derive income from Emerging Markets, but which are listed in developed countries.
For example, Pacific Rubiales Energy and Niko Resources are companies I have owned for a while, which I am still very excited about. There are both Canadian-based oil exploration and production companies that have exposure to some exciting newly discovered basins: the former in Columbia and Peru, and the latter in India, Indonesia and Kurdistan. The stocks are good example of Fidelity’s research strengths in uncovering hidden gems.
US-listed tobacco firm Philip Morris International and Danish brewer Carlsberg are examples of holdings that stand to benefit from increased levels of consumption in emerging markets.
Brenda Reed is portfolio manager of the Fidelity Global Equities Fund.