Barings takes dynamic approach to emerging markets

Baring Asset Management ("Barings") has demonstrated the benefits of a dynamic and tactical multi asset approach to investing in emerging markets through the Baring Dynamic Emerging Markets Fund (DEMF), launched last June.

The fund, launched to mirror the strategy behind Barings' flagship £4bn Dynamic Asset Allocation Fund in the emerging world, has exhibited strong performance and its flexible investment mandate has allowed it to react quickly to changing market conditions. Since inception it has returned 0.59% whilst the MSCI Emerging Markets index is down by 3.91% over the same time period. It has grown to £133.8m in assets under management as at 29th February 2012.

Hartwig Kos, co-manager of DEMF alongside Percival Stanion, explains, "In the eight months since we launched the Baring Dynamic Emerging Markets Fund, with an investment objective of emerging market equity-like returns with less than emerging equity risk over a long-term investment horizon, we have seen two distinct periods of market activity.

"Early on, a highly volatile summer and autumn period presented a scenario of relatively hostile conditions for risk assets as a whole, driven by the Eurozone sovereign debt crisis and also fears of a hard landing in China. In this respect, we viewed emerging market assets as highly correlated and we needed to take risk out of the portfolio. We did this by using all the flexibility we have at our disposal using our dynamic multi-asset investment approach. This included seeking what we viewed as excellent diversifiers during risky periods, such as an Australian Government bond position and, to a lesser extent, buying into the Chinese Renminbi. Exposure to gold also supported our risk mitigation objectives while helping to protect capital."

More recently, Barings identified a more risk-favourable environment. In light of this, Barings swiftly changed the complexion of the fund's portfolio by reducing the position in Australian government bonds and increasing the exposure to emerging market equities. Hartwig continues, "The catalyst for this change was strong economic data from the US and signs that Europe is pulling out of its sovereign debt malaise (supported by positive action from the European Central Bank). We have been seeing a recovery, of sorts."

A look at the asset allocation of the fund at launch, compared with the current allocation breakdown (as at 29th February 2012) highlights the swift changes the fund can make as market sentiment dictates. The equity allocation has increased from a third of assets at launch to over half at present, with the EMEA allocation in particular more than doubling. The bond allocation has also seen some interesting changes, most notably to Australian bonds: in June of last year Australian dollar denominated notes accounted for a fifth of total assets under management while today they do not feature in the fund's allocation at all.