For the inexperienced and "becoming experienced" investor, this might seem counter-intuitive, but here's a proposition that Barings CEO David Brennan would certainly support: that inefficient markets offer greater opportunity for single-house managers than efficient markets.
Now add a second proposition: that markets tend to be self-prophesying. Meaning that fund managers/experts predict the future; then invest accordingly; then the markets end up pricing as predicted. With this proposition you would end up with the majority of experts voting in favour of emerging markets (the more inefficient markets), outperforming the mature markets (the efficient ones).
Put the two together and David Brennan would argue that emerging markets offers Barings "both an investment strategy and a business strategy". Reflecting the thought that one of the biggest brands in asset management feels safe that their Global Emerging Market Fund, and Emerging Market Fund (with quartile rankings of 1st and 2nd within their peer groups over 1 to 5 years), have a serious case to offer any portfolio. The disclaimer on this being: beware the weightings, and beware the volatility.
Layman responses
For my Mrs the problem is: she liked the film about Nick Leeson, and the Barings crash — which means you get layman responses of: Barings, risk, and oops-a-daisy all in the same sense. For experienced and professional investors though Barings Asset Management carry a brand older than the average country, and the twin propositions of inefficiency versus efficiency, and emerging versus mature markets needs closer consideration. So here goes.
For "efficiency" refer to Eugene Fama's Efficient Market Hypothesis and the point that if everything is known about an asset it would be fairly priced and that such a market would be "efficient". Translated, efficient markets are all about information flow. The "mature markets" are characterised by colossal amounts of information and that information tends to align prices very quickly. In this world Electronically Traded Funds (ETFs), trackers and their ilk are likely to provide cost-effective access to market performance. It is extremely challenging for individual research teams to beat the market, or provide low-cost "alpha" (as they say on Planet Fund Manager).
For Brennan, the opportunity for fund managers is in the "inefficient" world of low-information flow. The Barings proposition is all about providing added-value by adding research and analysis into low-information markets, pertinently he makes the point: "The idea is good but resourcing it makes it happen". Ultimately, Brennan see's his approach as one that provides competitive advantage in the highly important niche of emerging markets. For example, Brennan brings up the point that ETFs "can't replicate emerging market indices because they do not have the information", which opens the door for active managers and their research teams to provide the alpha and earn their crust (as in crust of bread for those that eat pitta bread).
Contra view
And so to the second concept of emerging market supremacy over the next year. Hardly a new story, suffice to say that Barings are not taking a "contra view" to the herd. They are simply more involved in the emerging scene than the herd. Whilst this view isn't different to the 2009 view, Brennan's point that "emerging market supremacy in growth and earnings will not be as good as last year [2009]", is useful.The usual suspects appear in the Barings emerging market story: Latin America, China and India, although pushed on specifics, the Barings favourites are "domestically-orientated emerging markets where interest rates are low in historical terms and where consumers have low levels of borrowing. Indonesia and Turkey remain our preferred markets".
The writer is chairman of Mondial Financial Partners.
For Gulf News readers, the "what about us" question is answered by Barings commitment to a Barings MENA Fund, coming to these screens shortly, because "the long term investment case for the region is compelling". I asked why such a fund would need to be based in London rather than, say, among the coffee shops and restaurants at DIFC. To Brennan the issue is about "being where the information is", and maybe therein lies a message to the local investment community.
