Investors should look beyond long-only funds in emerging markets and begin pursuing long/short strategies, says Hugo Rogers, who manages funds for F&C Thames River.
He believes equity valuations in emerging markets are starting to converge with those in the developed world, weakening the effectiveness of long-only plays. Another factor is that structural changes in fast-growing economies, such as the emergence of a wealthy middle class, are opening up new imbalances that an active strategy can exploit.
“With a number of emerging markets maturing, there is increasingly divergent performance between countries and industries,” said Rogers. “We anticipate that even if the outperformance of emerging markets starts to slow and markets trade sideways, a portfolio of actively managed longs and shorts can deliver strong absolute returns.”
The Thames River Global Emerging Markets Absolute Return Fund, which Rogers will co-manage with Kristof Bulkai, has short positions in the Chinese banking sector and in semiconductor production, but long positions on middle class items such as PCs and cars. The Ucits III fund is launching next month.
“We believe the fund must be as active on the short side as it is on the long side to harness the best absolute returns in global emerging markets,” said Rogers.
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