Look to long-term growth with BNY Mellon Global Emerging Markets

A good way to tap into this potential growth could be BNY Mellon Global Emerging Markets Fund (GB00BVRZK937).

The fund’s investment team is led by Rob Marshall-Lee, who has over two decades of investment experience, and Sophia Whitbread. They are supported by more than 60 analysts who have specific sector expertise and a specialist team of responsible investment analysts.

Over a third of the fund's assets are in consumer discretionary stocks – double that of MSCI Emerging Markets index's allocation to these – an area that should benefit from growing wealth in these regions. Other key sector exposures include information technology and financials, which should also benefit from growing wealth and development.

However, the fund’s managers select holdings according to their individual merits, focusing on attributes such as balance sheet strength and return on capital. For example, although they have recently added to more cyclical stocks they have been very careful to ensure that all the fund’s holdings have robust balance sheets even if, for example, they have zero revenues for as long as six months. They like companies with the ability to sustain profit margins through downturns and strong cash conversion of profits – particularly useful attributes in the current environment. 

They also seek companies that they think are good quality, well governed and generate real value from their growth to reinvest for the benefit of shareholders.

Mr Marshall-Lee and his team also try to invest in areas that have strong growth potential, investing along the lines of a number of themes. For example, in April the fund benefited from its exposure to the electric vehicle supply chain amid optimism that demand for electric vehicles and batteries would improve sooner than expected. Its holdings in this area include South Korea’s Iljin Materials (KRX:020150) and Samsung SDI (KRX:006400), which the managers had recently topped up when their share prices dipped.

Mr Marshall-Lee and his team also aim to identify share price inefficiencies that can be exploited repeatedly to generate long-term outperformance.

Emerging market equities can experience severe bouts of volatility, which is reflected in the returns of funds that invest in them. For example, BNY Mellon Global Emerging Markets increased 35.58 per cent in 2017 and 19.25 per cent in 2019, but fell 19.56 per cent in 2018.

It is also still unclear what effect the coronavirus pandemic will have on emerging markets, and at present some of the worst affected countries include Brazil, a major emerging market.

However, despite periods of volatility, the fund has made strong returns over longer periods. The fund aims for growth over periods of five years or more and has been largely successful in its aim, beating MSCI Emerging Markets index and the Investment Association (IA) Global Emerging Markets sector average return over one, three and five years. It does not have large exposure to Brazil and the types of financially strong companies its managers invest in are better placed than many to endure difficult periods.

BNY Mellon Global Emerging Markets is also an active fund – its managers can focus on better placed areas, and invest less or not at all in ones that don't appear to have such good prospects. And so far, they seem to have largely made the right calls on this.

If you are a long-term investor not needing to draw on your investments any time soon, meanwhile, you can afford to sit through short periods of volatility.

So if you are looking to grow a pot of money over the long term, BNY Mellon Global Emerging Markets Fund still looks like a good way to tap into the emerging market companies likely to participate in the growth of these regions. Buy.