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On these pages we often discuss esoteric asset classes, from solar farms through to forests, that retail investors can use to diversify their portfolios and garner new sources of return. Yet, while these emergent categories are surely interesting, not all investors are so keen to allocate to riskier, long-term asset classes.
Indeed, before looking to these fascinating assets, for some investors even relatively established sectors may prove nerve-wracking. The archetypal example of the risky sector is emerging markets.
In some ways this makes sense: if you follow the adage that you should only invest in things you understand, then perhaps a far-off economy, at an earlier stage in its development, may intuitively seem hard to get to grips with. Yet, many investors will already have some exposure to emerging markets via their global fund allocations. And it is worth noting that professional investors consider emerging markets a “core” asset class, albeit with the size of an allocation adjusted in line with risk tolerance.
It's certainly been a turbulent time for emerging markets, no doubt a factor that will have further warned some off. The sector soared out of the pandemic, rising 20% above its December 2020 peak in early 2021, before stumbling in 2022, declining almost as far as it did in the early stages of the pandemic.
While the sector has recovered somewhat since then, there remains significant room to run for it to reach even its pre-pandemic high. With that in mind, it is an interesting point to look at emerging markets.
Two factors often emphasized when considering the sector are depth of experience and depth of resources. One trust that can claim both is Fidelity Emerging Markets (FEML). Its lead portfolio manager, Nick Price, has been investing in emerging markets for 24 years and running his own funds for 12 of those. He and his co-portfolio manager are able to draw on the expertise of around 50 analysts focused on emerging markets, with some on-the-ground in the local markets.
These resources have enabled the trust to build a differentiated portfolio, which employs both long and short positions, unusual in the sector.
For some, region-specific investing seems a more intuitive option, on the basis that global EM managers may need to spread their attention too thin. If this is the case, JPMorgan Asia Growth & Income (JAGI) is an interesting case to consider, benefitting from similar characteristics to FEML. Its managers have been investing in Asia Pacific for over 50 years collectively and can draw on the expertise of 40 analysts, many of whom are on the ground.
The trust offers investors a core exposure to Asia Pacific, by using top-down analysis to steer clear of the riskiest areas, while using detailed bottom-up stock selection to identify the best individual companies.
To find out more about investing in Asia, you can read our full guide on investing in the region here.
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