Share of the Month: Break for the border-- Stella Shamoon diversifies with a punt on progress in emerging markets
Times OnlineJune 14, 2003
MY FAITH in a few rare shares as a means to increase capital over the long term remains undiminished, which is why I have not previously recommended bonds, whether gilts or corporate debt. But the collapse of prices in shares of even the best companies in the past three years has brutally demonstrated the need for diversification in any investment portfolio.
Hence the case for owning shares in the Ashmore SICAV Emerging Markets Debt Fund. The fund’s managers aim to provide long-term capital growth through investment in emerging market bonds, debt securities and other investments (primarily those issued or guaranteed by the governments of the countries concerned, and also those issued by public sector and private sector companies).
The investments within the fund are denominated in US dollars, euros, Swiss francs and other major currencies; and, to a lesser extent, the currencies of emerging market countries themselves.
Ashmore, which runs $3 billion (£1.82 billion) in its various funds, is well regarded by institutional investors as a specialist in the debt securities of emerging economies, which may or may not be below “investment grade”.
Russia, for example, with $70 billion in reserves and oil riches, is now perceived as nearly investment grade. Mexico has reached investment grade, while Brazil, Venezuela, Nigeria and Equador remain high risk.
We already have exposure to emerging economies via shares in such multinational companies as HSBC, AIG, Shell, ENI and L’Oréal. But those are only side bets that the underlying businesses will capitalise on future reforms and growing prosperity in various developing countries.
Ashmore is a direct bet on that progress in emerging countries. Its biggest bets are currently concentrated on Mexico, Brazil and Russia, where it has allocated 15 per cent, 18 per cent and 19 per cent respectively of its fund. This concentration is unusual and reflects current opportunities. Ashmore normally has 3 per cent to 5 per cent spread over each of 20 different countries at any given time.
After three years of “submerging” valuations in shares in developed markets, sophisticated investors are not so wary of emerging markets. The smart money is betting on sovereign debt, which, being more difficult to analyse than corporate risks, trades at lower (more attractive) prices.
So investment in emerging market debt within a blue chip share portfolio can increase returns while the economies of the US, UK, Europe and Japan remain anaemic.
Buying shares in Ashmore is a little more complicated than investing directly in specific company shares. But a good stockbroker, private bank or independent financial adviser can open the door. Given that Ashmore’s flagship fund has produced a net annual return of
19 per cent over the past ten years, I reckon it is worth the effort.
Minimum investment is $5,000 or ?5,000, and it cannot be bought in sterling. But, hey, this is a good time to cash in on the lower dollar with sterling still relatively strong.
An initial sales charge of up to 5 per cent may be added, although this is reduced or waived for big-hitters. There is no charge when you sell. The annual management charge is 1.5 per cent and if the shares grow at more than a “hurdle rate” of 10 per cent in net asset value per annum, the investment manager takes a further 20 per cent above the hurdle.
But if Ashmore’s investment managers jump that high, who am I to begrudge them their share of the spoils. For general inquiries and a prospectus, e-mail ashmail@ashmoregroup.com. I am buying Ashmore SICAV at $115.89.
- Since starting Share of the Month in April 1998, I have recommended 66 different companies, albeit concentrated within a handful of sectors: oils, pharmaceuticals, financials, speciality retailers and brands and technology, media and telecoms.
I have sold 27, but as my remit is to propose a different prospect each month, the number of shares still held in the portfolio is too great. Ideally, a growth portfolio should embrace between 12 and
15 shares, spread over four to five different sectors.
Therefore, I am pruning the portfolio of defensive shares, which I believe could underperform the rest as stock markets recover. Accordingly, I am selling Tesco, Walgreen’s, Weight Watchers and Exxon Mobil. This is purely a lightening up exercise and does not reflect deteriorating fundamentals in any of those excellent businesses.