Fund managers are offering single country funds in developing markets such as China, Brazil, India and Indonesia, but do they offer great rewards and are they worth the risk?
There is a cliché in the investment world of not putting all your eggs in one basket and, usually, it makes good sense. For instance, investing all your money into a high-flying Korean or Chinese fund might produce stellar returns. But what if tensions between North and South Korea intensify or the US tightens sanctions on China?
This is not to say you shouldn’t invest in single country funds, just that they should be one element of a larger and geographically spread portfolio.
From a risk management perspective, you would want the Baring Korea or Jupiter India funds (both have strong five-year performance figures) to ideally be satellite rather than core holdings.
Martin Bamford, chartered financial planner at Informed Choice, explains that single country funds can play a useful role when constructing an investment portfolio where they allow precise allocation to a region or theme.
Fund managers’ expertise
Expert single-country Fund managers are often based in that country so they can really understand local companies. Unlike generalist emerging market fund managers, they are not trying to cover too many bases.
“Within the portfolios we create for our clients, we only have UK, US and Japan single country funds, before broadening out to use wider allocations across Europe, Asia Pacific and Emerging Markets.”
Bamford adds: “For larger portfolios, it can be useful to allocate to a wider number of single country funds, although this requires careful consideration and ongoing monitoring.”
Sometimes there is an advantage in opting for narrower rather than broader funds. Not that long ago, BRIC funds were in vogue. This gave investors exposure to what were seen as the ‘power house’ emerging economies of Brazil, Russia, India and China.
A combination of sanctions, political scandal, commodity price collapses and economic mismanagement have taken the shine off BRIC products since.
Not surprisingly there have been a few casualties. For instance, in 2015, Goldman Sachs folded its BRIC vehicle, moving the assets invested into a more diversified emerging market fund.