If new fund launches at the end of 2011 and early 2012 were any indication, the smart money is choosing to plunge into emerging markets-foreign currencies and all-armed with new strategies.
Practically every large fund operator or starched-collar firm has either launched a fund in a growing economy somewhere or is planning to: BlackRock, Pimco, Alliance Bernstein, Investec, Fidelity, T. Rowe Price, Aberdeen Asset Management, Lazard ... the list goes on. And this time many are avoiding being boxed in by styles and sectors. The favored vehicle is an emerging market fund holding multiple asset classes-bonds, equities, currencies, commodities-piloted by seasoned managers who, aided by technology, can adopt strategies fast enough to hold course despite the dizzying volatility of our new lockstep global economy.
"Advisors in the U.S. obviously need to educate themselves about what's going on in the rest of the world," says Dawn Bennett, advisor for the Washington, D.C.-based Bennett Group of Funds. "Otherwise, they're just treading water." Bennett holds court weekly on radio and the Internet at http://www.bennettgroupfinancial.com. Her four funds (the BFAAX Bennett Aggressive Growth fund, the BFNAX Bennett Conservative portfolio, the BFOAX Bennett Growth fund and the BFMAX Bennett Moderate fund), are offered to advisors through Charles Schwab and Pershing LLC.
In addition to fund styles, the geography of the emerging markets is also changing. Bennett, who grew up in Asia, likes the "CIVETS"-Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. These countries, she suspects, should outperform the BRIC nations of Brazil, Russia, India and China. And she expects both groups to do better than U.S. markets this year.
Another up-and-coming group, favored by fund manager Robert W. Scharar, is pan-African: Egypt, Kenya, Ghana and Nigeria. Scharar, president of FCA Corp., a Houston-based fee-only financial planning firm, launched the Africa Fund (CAFRX) in November. With more than 50 holdings in foreign companies doing business in these nations, the fund returned 4.99% from its inception on November 7 through January 27. The fund's expenses may look steep to investors. The net expense ratio in the prospectus is 3.02%.
People tend to think of Africa as one amorphous market, but it is actually made up of very distinct economies and cultures, says Scharar, who runs four funds for the Commonwealth Funds, mainly in developed or developing countries. "I believe strongly in diversifying not just among assets but economies and locales."
Scharar has done business in Africa for decades. A number of years back, he says, he invested in a shopping center in Malawi, which shares borders with Mozambique and Zimbabwe. He was delighted when a South African supermarket operator put a store there. Now it is a huge success, he says, "with sprayers over produce and a deli counter that serves local products as well as things we would know about, like Tobasco sauce from New Orleans. I always get a kick out of that." A strong sign of the continent's changing business climate, says Scharar, is Walmart's recent buyout of Massmart, a South African retailer with nine wholesale and retail chains with 288 stores in 14 African countries, for 16.5 billion rand ($2 billion).
Investors interested in East Africa have access through the new Nile Pan Africa Fund (NAFAX) offered by Nile Capital Management in New York. This equity fund gained 22.07% in its first year, outperforming the MSCI Frontier Markets index for the year ended April 2011. During the one year, the Frontier Markets index gained 9.94%, the Dow Jones Africa 50 Titans Index increased 11.07% and the S&P 500 Total Return Index advanced 16.67% annualized, according to the site Money Watch Africa.
According to these managers, the risks in emerging markets can be high, but they offer one of the few means of investment growth. Allan Conway, head of Emerging Market Equities for Schroders, told Morningstar, "Emerging markets today are the low-risk investment."