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Exploit India and emerging consumers with Fidelity Emerging Markets

Fidelity Emerging Markets provides meaningful exposure to India without the risk of a single-country fund.
December 30, 2014

Indian equities have been riding on a wave of optimism following the election of the country's pro-business Prime Minister Narendra Modi in May 2014. And although they have already risen strongly, they could well have further to go. "The recent fall in the oil price is good news for India," says Adrian Lowcock, head of investing at AXA Wealth. "If oil stays at or below $80 a barrel it could add as much as 1 per cent of gross domestic product (GDP) to the country. And by 2016 growth in India is expected to surpass China."

IC TIP: Buy at 127.4p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points
  • Strong performance
  • Focus on quality
  • India exposure
  • Low energy exposure
Bear points
  • Possible pressure on Indian economy

A number of India funds, including New India Investment Trust (NII), an IC Top 100 Fund, performed strongly in 2014.

Read more on this

But single-country funds carry higher risk because they are focused on just one country, so they may not be suitable for all investors. If you want some exposure to India but don't want to put all your eggs in one basket, you could consider Fidelity Emerging Markets Fund (GB00B9SMK778).

This has 16.5 per cent of its assets in India, more than double the allocation of its benchmark index, MSCI Emerging Markets. Its largest sector exposure is consumer discretionary, so it taps into the rise of the emerging markets consumer - a reason why we first tipped it last year.

Read the tip

The fund is very light on energy shares - 2 per cent against 8.8 per cent for its benchmark - which should also help mitigate against falling oil prices.

The fund has performed well, beating its benchmark over one and three years, as well as the Investment Management Association (IMA) Global Emerging Markets sector average.

"Managed by Nick Price, the fund is a best-of-breed portfolio, with stocks selected from Fidelity's three regional emerging market portfolios," says Mr Lowcock. "The focus is on quality, consistency of returns and attractive valuations."

Mr Price favours companies with strong market positions and competitive advantages, as these are typically able to deliver attractive earnings throughout the economic cycle. While income from this fund is likely to be moderate, Mr Price has a preference for companies that distribute a dividend to their shareholders.

He also favours companies that deliver superior returns on their assets and have well-capitalised balance sheets. This is because such companies are usually more able to fund internal growth without diluting existing shareholder earnings through issuing new shares.

The fund also has a reasonable ongoing charge of just over 1 per cent and is available on platforms including Alliance Trust Savings, Fidelity Personal Investing and Hargreaves Lansdown, though you have to pay platform fees on top of this.

The fund does face potential headwinds, though. For example, if US interest rates rise faster than expected it will put pressure on the Indian economy, to which it has substantial exposure. "In addition, in 2015 the euphoria surrounding Modi's election will have passed and impatient investors will want to see changes coming through," adds Mr Lowcock.

But the fund is not only invested in India and its managers have so far proven their ability to allocate well, so if you want to benefit from long-term emerging markets consumer growth, then Fidelity Emerging Markets looks like a good option. Buy.

 

FIDELITY EMERGING MARKETS FUND (GB00B9SMK778)

PRICE

106.2p

MEAN RETURN

9.71%

IMA SECTOR

Global Emerging Markets

SHARPE RATIO

NA

FUND TYPE

Open-ended investment company

STANDARD DEVIATION

12.27%

FUND SIZE

£766.23m

ONGOING CHARGE

1.03%

No OF HOLDINGS

71*

YIELD

0.66

SET-UP DATE

28-Jul-97*

MINIMUM INVESTMENT

£1,000

MANAGER START DATE

22-Mar-10*

MORE DETAILS

www.fidelity.co.uk

Source: Morningstar, *Fidelity

Performance

1 year total return (%)

3 year cumulative total return (%)

Fidelity Emerging Markets W Acc

7.4230.79

MSCI EM NR GBP

5.4613.37

IMA Global Emerging Markets

4.8013.72

Source: Morningstar as at 2 January 2015

Top 10 holdings as at 30 November (%)

NASPERS

7.9

TAIWAN SEMICONDUCTR MFG CO

4

HDFC BANK

3.6

NETEASE

3.5

KROTON EDUCACIONAL

3.3

AIA GROUP

3.3

STEINHOFF INTL HOLDINGS

3.2

COGNIZANT TECH SOLUTIONS

3

TATA MOTORS

2.7

BANK RAKYAT INDONESIA

2.5

 

Geographic breakdown (%)

India

16.5

South Africa

16.1

China

13.3

South Korea

7.9

US

6.4

Taiwan

6.1

Brazil

6

Hong Kong

5.7

Indonesia

3.3

Nigeria

3.20

Other equity

14.40

Cash

1