TIP SHEET: Not All Geographic Bets Are Even For Schroder Fund
16 April 2012 - 10:05PM
Dow Jones News
Allan Conway keenly focuses on growth opportunities in emerging
markets when investing abroad, saying the selection of the right
country is more important than picking a hot stock.
Conway, portfolio manager of Schroder Emerging Market Equity
Fund (SEMNX), said his fund's investment thesis begins by analyzing
nations. Conway said he believes investing in emerging markets is a
smart bet as those nations will be the growth engine for the global
economy.
"Being in Russia or Brazil is more important than picking a
certain stock," said London-based Conway. He said the fund gets 50%
of value-added returns coming from country selection and 50% from
stock picks, while many competitors place their bets entirely on
stocks.
"For us, it's about country foremost and then finding the best
stocks in each country," added Conway about the fund, which was
founded in March 2006.
According to Morningstar, the approximately $464 million fund
has returned 14% year-to-date through Thursday, about 6.4
percentage points above the benchmark MSCI Europe, Australasia and
Far East index, rebounding from 2011's negative returns. Over the
three years through Thursday, Morningstar shows that the fund has
annualized total returns of 19.2%, outperforming the benchmark by
5.7 percentage points.
Conway said stock analysts are often organized by sector but the
Schroder fund's team is split by country to understand regional
dynamics, adding that those factors are vital to understanding how
the stock will perform.
Schroder's team considers gross domestic product, political
unrest and election news as it picks various nations in which to
invest, focusing also on broader themes like the euro crisis and
the Arab Spring revolution. He cited an example of two theoretical
banks, one in Russia and the other in Mexico, saying it is more
important to analyze their local environments than the fact that
they both are banks.
Regionally, the fund is overweight in China, South Korea, Russia
and Thailand. It is neutral in Brazil but underweight in a handful
of countries, including Mexico, Hungary, Czech Republic and
Poland.
The portfolio's top holdings are in the financial, energy and
information technology sectors, including stakes in handset maker
Samsung Electronics Co. (SSNHY, 005930.SE), gas company Gazprom
(OGZPY, GAZP.RS) and auto maker Hyundai Motor Co. (HYMLY,
005380.SE). Nearly two-thirds of the fund's stock holdings are in
Asia.
In the near term, Conway said Schroder is slightly cautious
about returns as problems in Europe and ongoing questions about the
strength of the U.S. economy affect emerging markets' performance
this year, as they did in 2011.
Also, though there have been some concerns about China suffering
from a hard landing, Conway said he believes authorities will do
whatever it takes to ensure continued economic progress and to
maintain political stability.
Over a longer period of investing, looking two to three years
out, Conway said buying into emerging markets is a fantastic
investment.
"If you are taking a short-term view, there may well be a better
opportunity in a month or two's time, but if you are taking a
two-to-three-year view, the money you are putting in today could
look really good," said Conway.
(John Kell is a general assignment reporter covering alcohol and
tobacco companies, drugstores and car-rental firms for Dow Jones
Newswires. He can be reached at 212-416-2480 or by email at
john.kell@dowjones.com.)
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