2 investment trusts for emerging market investors

These investment trusts may be worth a closer look for those expecting a rebound in emerging markets.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After strong gains in 2016 and 2017, emerging market equities are once again falling out of favour with investors. For several weeks now, investors have been pulling out billions of dollars from emerging markets, amid growing fears of a US-China trade war and the rising pressure from the dollar and higher bond yields.

However, some investors may see this as a contrarian opportunity to buy into weakness. Certainly, the escalating trade tensions and political instability should be taken seriously, but the sell-off in emerging markets may have been overdone. Some analysts reckon valuations have already adjusted sufficiently to compensate for the increased risks, while the longer-term outlook for emerging markets remains fundamentally attractive.

Discount to NAV

What’s more, there are a number of emerging market-focused investment trusts which continue to trade at a significant discount to their net asset values (NAVs), giving investors the opportunity to pick up shares in such funds for a price which is significantly below the value of their underlying investments.

One fund with a particularly wide discount to its NAV is the Templeton Emerging Markets Investment Trust (LSE: TEM). With a discount of just over 15%, the fund is trading at its widest discount to its NAV for nearly two years.

Aside from the recent sell-off in emerging markets, another cause for its widening discount may be the recent change in its fund manager. Veteran fund manager Mark Mobius, who had been at the helm of the fund for 26 years, retired earlier this year, and was replaced by Chetan Sehgal.

Consumer bias

In terms of allocation, the fund tilts towards countries such as China, South Korea, Brazil and Russia. Sector-wise, the trust is noticeably overweight towards consumer discretionary stocks, which account for 19.3% of its total assets, compared to just 9.5% of the benchmark MSCI Emerging Markets Index.

The consumer discretionary sector has been a persistent favourite for the fund, and is an area which seems best placed to benefit from domestic consumption growth in emerging markets. The consumption theme goes beyond goods and also include services, which are coming to represent a greater proportion of the emerging market economy. Demonstrating this, it has substantial exposure to the Chinese IT sector, via stakes in Naspers (6.1%), Alibaba (4.4%) and Tencent (3.2%).

Frontier markets

Despite the recent rout in emerging markets, frontier-markets funds have remained popular. Such funds invest in smaller countries which are at an earlier stage of economic or political development than many larger emerging markets. 

Frontier-markets funds haven’t quite entered into the mainstream, and there aren’t very many of them of them on the market — with a demand-supply imbalance, many investment trusts in this space trade at a modest premium.

One such fund is the BlackRock Frontiers Investment Trust (LSE: BRFI), which currently trades at a 4% premium to its NAV. Launched only back in 2010, the fund has realised impressive returns during its short life. Over the past five years, shares in the trust have delivered a cumulative return of 72% — nearly double the performance of its benchmark MSCI Frontier Markets Index, which gained only 39%.

Its most recent performance has been less remarkable, however. Shares in the fund are down 6% year-to-date, following a sell-off in Argentina, its biggest country exposure, and a general shift in sentiment away from riskier assets.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 ways to make money from a stock market crash

This writer's not spending time trying to guess when the next stock market crash will be. Instead, he's getting ready…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

How this rocketing FTSE 250 stock is tapping into the billionaire-making AI revolution

As the AI revolution mints new billionaires, this high-flying FTSE 250 company has been making its shareholders wealthier too.

Read more »

Investing For Beginners

4 actionable stock market investing habits that can boost my profits

Jon Smith looks at the stock market and explains how he picks the right shares to buy, running through a…

Read more »

Investing Articles

The Standard Chartered share price leaps on FY dividend and buyback news. Time to buy?

An 8% jump for a UK-listed bank on 2023 results? That's what just happened to the Standard Chartered share price.…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Can Lloyds shares get any cheaper?

Lloyds shares have fallen further following the release of the bank's 2023 results. This Fool senses now is a time…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

£7,000 of money to spare? Here’s how I’d aim to turn that into £1,000 in annual extra income

Christopher Ruane explains how he would aim to generate a four figure income to cushion his future, all with dividend…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is this stellar dividend growth stock the only no-brainer buy on the entire FTSE 100?

Picking shares requires careful thought and analysis, but this FTSE 100 growth stock appears to be pressing all the right…

Read more »

Investing Articles

I bought 422 Glencore shares in July and 232 in September. Here’s what they’re worth now

Glencore shares have had a rough ride leaving Harvey Jones out of pocket. Should he cut his losses or average…

Read more »