Fund Objective

The Fund aims to achieve capital growth through investment in the securities of companies operating in emerging markets.

View on Past Performance

Investor sentiment deteriorated rapidly during the third quarter about the gravity of a serious global slowdown. The collapse of Lehman Brothers and the state rescue of AIG in the U.S. lead to massive instability of financial institutions throughout the developed worldThe market correction led to a fall of 18.3% in the MSCI Emerging Markets index. Asia (-15.0%) was the best performing region, in relative terms, as it benefitted from the easing in commodity prices. Latin America declined 25.0%, with Brazil falling 30.9% as the decline in commodities prices dragged the market lower. Mexico fell by 9.6%.The MSCI Eastern Europe index fell 28.8%: Russia declined 38.9%, suffering in part from the fall in the price of oil, but the decline was mainly a result of its own liquidity crisis. Amid this turmoil, the local exchanges closed the markets on a number of occasions and the Kremlin followed western governments' actions by supplying billions of dollars to the financial markets and key institutions. All market returns quoted are MSCI index returns based in sterling terms.

Future Expectations

The credit crisis looks far from over and the case for emerging markets, particularly on a relative basis, remains intact. Growth deceleration is proving to be much less marked in Emerging Markets than in developed markets. Earnings expectations have also proved resilient with 10% growth still expected. Valuations on a forward PE of 8-9x are very attractive barring a stagflation scenario.In the short term, Emerging Markets equities retain a high beta compared to global equities. The moderation we have seen in commodities and oil is beneficial as inflation expectations have fallen very quickly and this provides the extra rationale for a change in policy objective towards underpinning growth.We believe it is likely that monetary easing will become an Emerging Market theme over coming months. We retain our view that stocks exposed to domestic growth within the asset class, as opposed to exporters and cyclicals, are the most attractive. With Emerging Markets now very cheap and oversold, we believe this is a good time to accumulate this asset class.

Fund Details