Opportunities to make money from emerging markets after a decade of under-performance abound. So claims Chris Tennant who, along with Nick Price, runs the £524 million investment trust Fidelity Emerging Markets Limited.
‘The stars are very much aligned for emerging markets right now,’ he says. ‘Strong prices for metals such as gold and copper – recent falls notwithstanding – are acting as a tailwind, as is demand from US tech companies for the semi-conductors produced by the likes of TSMC in Taiwan and Samsung Electronics in South Korea.
‘We’ve got tech innovation in China across industries such as solar energy and batteries – and some high-quality companies across Eastern Europe and Latin America which we can invest in at low prices.’
Tennant’s positive take on emerging markets is reflected in the trust’s performance numbers.
Over the past year, it has delivered overall returns to investors of 74 per cent – more than double those from the average global emerging markets investment trust (34 per cent).
It is also mirrored by the fund’s portfolio with TSMC and Samsung appearing in its top-ten holdings and an array of mining companies among its biggest positions: the likes of Compania de Minas Buenaventura (Peru) and copper miner Grupo Mexico.
Chinese company Sieyuan Electric is also in a top-ten fund position. ‘It provides gas insulated switchgear that is used in grid networks,’ says Tennant. ‘What we like about Sieyuan is that it’s one of the few privately owned businesses operating in the sector in China and has a pool of research and development talent that is driving innovation. It’s also benefiting from a boom in exports to countries in Asia, Latin America, and the Middle East.
‘We bought it a year ago when it was valued at between $6 and $7 billion (£4.4 and £5.1 billion). Today, it’s valued in excess of $21 billion.’
What differentiates the trust from rival emerging markets funds is its use of complex financial instruments to enhance returns for shareholders. It does this through ‘contracts for difference’ – both ‘shorting’ stocks in the expectation of them falling – and going long on stocks in the hope of them rising. ‘The idea is to capture gains by identifying positives and negatives,’ says Tennant. In the past, the trust has made money for shareholders by going long on South African supermarket giant Shoprite in the expectation of the company building market share – while shorting ailing rivals.
In the last calendar year, Tennant says that just under a quarter of the fund’s out-performance of its market index was a result of successful shorting.
The trust’s use of contracts for difference differentiates it from sister fund Fidelity Emerging Markets, which is not listed on the UK stock market – and has a portfolio skewed more towards larger companies.
This £1 billion fund is also managed by Tennant and Price. Over the past one, three and five years, it has not matched the returns of Fidelity Emerging Markets.
The trust’s total annual charges are 0.83 per cent, its stock market ticker is FEML, and the identification code is B4L0PD4.
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