Managed fund managers cool on emerging markets equities

Managers of funds in the managed/asset allocation sector are moving away from emerging markets equities, said Standard & Poor’s Fund Services in its latest review of the sector.
 
"Although there continues to be a bias towards emerging markets in the equity portions of portfolios, several managers have taken profits in the last few months," said Roberto Demartini, fund analyst at S&P Fund Services.

Demartini points to Andreas Koester at UBS to be among the first to take a harsher view of emerging markets. "Flow data supported his view that emerging markets were a crowded trade and he therefore started reducing exposure during the summer of 2010 and eventually cut the position to zero."

This move away from emerging markets was evident in the equity component of other portfolios that were part of the S&P sector review. The team at L&G, for example, has retained a substantial bias to emerging markets equities but has taken some profits and repositioned a portion of the portfolio towards alternative long/short strategies. Andrew Cole at Barings has also increased exposure to the developed world, but in this case he switched part of the portfolio from an internal pool invested in agriculture into another internal pool set up to invest in Western multinationals.

"In a nutshell, the consensus clearly remains positive on equities versus fixed income, but for the first time in several years, developed markets, in particular large-cap multinationals, are seen by several managers as a better opportunity than emerging markets," said Demartini.

There were differing views, however. Jon Rebak at HSBC, for example, remains positive on emerging markets and started a position in Russia towards the end of the year. This was not on the back of the rising oil price but in the belief that Russia was under-owned and had strong potential for delivering substantial earnings growth.