Diversification is key to building an investment portfolio that will deliver long-term gains. It helps spread risk which is all important, especially in a world where risks abound (geopolitical, economic and market related).
Of course, it doesn’t guarantee investment success – there are no guarantees when it comes to investing – but it gives you a better chance of coming out on top.
Diversification comes in many forms. One of the best diversifiers is to invest through a fund because they hold a basket of shares or other holdings.
Diversification also comes from investing in different stock markets (not just the UK); various asset classes (bonds as well as equities); and across fund management groups. One of the more exciting diversifiers is exposure to emerging markets – the stock markets of some of the world’s fastest growing economies such as India, South Korea and Taiwan.
Although their performance is impacted by global events, they can produce periods of stellar returns – usually, when the world is in growth or recovery mode. A few days ago, emerging markets specialist Ashmore painted a rosier picture of this investment sector than it has done for a while when reporting its assets under management at the end of last year.
Powered up: Templeton – led by Chetan Sehgal – has invested in Indian firm Bajaj Holdings, which makes electric scooters
It said that overall assets increased by four per cent in the final three months of 2023 with emerging market equity assets growing by eight per cent. This was despite more clients withdrawing their money from the company than those buying its investments.
In presenting the figures, chief executive Mark Coombs said emerging markets had outperformed most developed stock markets in 2023 – and he saw no reason why this could not continue well into 2024. A mix of superior economic growth and attractive share valuations, he forecast, would lead to further outperformance and increased exposure to a sector that many investors have avoided.
It’s a view that the market seems to agree with. Over the past year, shares in FTSE 250-listed Ashmore have slid by 17 per cent, but an uptick in the outlook for emerging markets has resulted in a recent bounce with the shares up nearly 32 per cent over the past three months. Ashmore’s positive outlook is shared by Chetan Sehgal, lead manager of investment trust Templeton Emerging Markets.
TEMIT is the grandparent of the emerging markets fund universe. It has been around since May 1989 and has consistently proved its worth to investors, although recent numbers have been disappointing – due to its exposure to a non-performing Chinese stock market. A quarter of its assets are in China.
Over the past ten years, the trust has delivered returns of 71 per cent. Over the last 12 months, it has recorded a loss of 7 per cent.
I spoke to Chetan a few days ago – him in Singapore, me in a freezing London – and I was taken back by his enthusiasm for the asset class. ‘There is no shortage of excitement when it comes to emerging markets,’ he said.
Notwithstanding the laggard that is China, Chetan believes there is plenty to be positive about. For example, a strong Indian economy, world-leading companies in South Korea and Taiwan (Samsung Electronics and Taiwan Semiconductor Manufacturing are the trust’s two biggest positions) and a new generation of companies responding to the need for clean energy.
So, the trust has stakes in Indian company Bajaj Holdings (a manufacturer of electric scooters); and Hong Kong-listed WuXi Biologics, a world leader in the development of cancer drugs. It also has a holding in Samsung SDI, a manufacturer of electric car batteries – and US- listed Daqo New Energy, a Chinese company involved in the solar energy sector.
‘Emerging market countries need energy security,’ says Chetan, ‘and solar energy provides it. My view is that access to such low-cost energy will transform the emerging markets landscape.’
Excited though he is by the future, Chetan is also comforted by the resilience emerging markets have shown in the face of high interest rates and inflation. It gives him reassurance that emerging market debt crises are more a thing of the past than the present (with the exceptions of Argentina and Venezuela).
Two final thoughts. First, TEMIT is not the only way to get exposure to emerging markets. Funds run by JP Morgan, Mobius Capital and ICM (Utilico Emerging Markets) all have superior five-year performance records. Buying shares in Ashmore is also an option. Second, emerging markets don’t provide investors with all the answers. They should only form a small part of an investment portfolio brimming with diversity.
‘Paul’ most likely to leave a product review
Financial product review website Smart Money People is short of sane things to say, judging by its analysis of customer reviews published a few days ago.
The research informed us that when it comes to leaving product reviews on its website, those with the forename Paul are most minded to do so.
Meanwhile, those called Nicolas are most generous with their reviews (leaving the highest ratings); while Christophers are the least.
I (Jeff) get a lot of baloney from financial companies. But Smart, this nonsense really does take the biscuit.
Rail network is crumbling but no one seems to care
Second-class service One
Appalling customer service: Avanti West Coast gleefully boasting of receiving free money from the Government
Over the past month, I have made ten successful claims for late-running trains, in the process obtaining compensation totalling £63.20.
I am grateful for these refunds, but they are small beer compared to the amount I have forked out in fares over the same period (in excess of £800). They also fail to truly acknowledge the inconvenience caused by late trains (and missed connections); cancellations; rammed carriages; and a dearth of information when it is most needed.
To take just two examples of this inconvenience: One, I can’t understand how the first SWR train of the morning that earlier this month was meant to whisk me from Wokingham to Reading (6am) could be on time at 5.30am; 16 minutes delayed at 5.55am; and then simply fail to turn up, leaving everyone on the platform both frustrated and angry. To make matters worse, there was no tannoy announcement explaining what the hell was actually going on.
Two. Was it right for GWR just over a week ago to suggest to standing passengers on a delayed train waiting for an eternity on a platform at London’s Paddington that they could upgrade to first class? In the carriage where I was standing, the announcement was greeted with howls of derision.
With train driver strikes scheduled for later this month and executives at train operator Avanti West Coast gleefully boasting of receiving free money from the Government (despite an appalling customer service record), the railway network is crumbling before our very eyes and no one seems to care – other than long-suffering passengers.
Second-class service Two
Numerous readers have complained about receiving £5 demands from Royal Mail because letters posted to them allegedly used counterfeit bar-coded stamps.
Yet when they spoke to the senders of these letters (friends and family), they were told the stamps had been bought at the Post Office or WH Smith, so could not be fraudulent.
When challenged on the validity of these surcharges, Royal Mail was not for turning, insisting fraud had to be guarded against.
It told one complainant she could support the organisation in reducing stamp fraud by reporting it.
Another example of an organisation that has forgotten how to treat customers with respect.
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