Investors should 'diversify', but shun emerging markets in 2017 Investors should ‘diversify’, but shun emerging markets in 2017

Investors should try to be invested in funds that are genuinely diversified, but avoid excessive emerging market exposure, according to Simon Edelsten, who runs the Artemis Global Select fund.

 Investors should ‘diversify’, but shun emerging markets in 2017

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He told What Investment that, ‘Funds which try to grab the headlines tend not to be diversified. You can check how diversified they are by looking at the composition by sector and country and if anything looks lumpy (over a quarter of the fund in one market, except the USA which is half the world) it probably is.’

The veteran investor continued, ‘n global one or two funds have found their concentration a problem – consumer staples or technology or emerging markets – all have period s where they drive these funds to the top of the pile and then periods where they drag them down. A well diversified fund will often be {in the  second quarter of performers amongst its peers} in any year but end up {in the top quarter} in the long run.

Also beware diversification for the sake of it – a fund holding a balance in bonds last year was always likely to see that diversification lose money -and did.’

Read more: The two best funds for emerging markets in 2017

Edelsten is not keen on investing in emerging markets at the present time. He told What Investment, ‘We have deliberately reduced theme Emerging Markets from circa 20 per cent two years ago to 11 per cent today.  We had made very good money since launch in 2011, mainly investing in developed world companies selling into emerging markets.  These companies seemed on historically high valuations last year, have started seeing input cost pressure – challenging margins, and cannot avoid falling EM currencies.’

Emerging Market currencies tend to perform poorly when the US dollar is strong. The US dollar is likely to be strong in 2017 because interest rates are rising.

Rising commodity prices, caused in part by the rise in the US dollar, many also act over the medium term to dampen demand for those commodities, which is bad for the emerging markets that export them.

The Artemis Global Select Fund has returned 107 per cent over the past five years, compared to 80 per cent for the average fund in the IA Global sector in the same time period.

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