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A top British investor says this is the trade that’s likely to make you money in the years ahead

Legendary British investor Jeremy Grantham – who called both the dotcom crash and the Global Financial Crisis in advance – is worried about the stock market at the moment. Speaking to CNBC last week, Grantham said he believes some areas of the stock market (mainly US equities) are currently in a bubble.

However, Grantham also said there are areas of the market that are undervalued right now and offer considerable potential. Specifically, he identified one trade he believes has the potential to make investors money in the years ahead. Interested to learn more? Read on, and I’ll tell you about the trade Grantham likes right now. 

The best stocks to buy right now? 

Grantham currently believes US stocks (which many UK investors have exposure to either directly or through funds and investment trusts) are in a bubble. He thinks investors have got carried away and that the market is now very much detached from reality.

However, one area of the stock market that Grantham likes right now is emerging markets, which he believes have been neglected recently.

Sell your US [stocks] 100% and buy emerging and throw the key away for a few years and you’ll have a story for your grandchildren about how you outperformed the investment professionals,” he told CNBC.

This trade certainly looks interesting, to my mind.

While I’m bullish on US equities in the long term, the market does look a little overheated right now, in my view. I wouldn’t be surprised if we see a near-term correction. Meanwhile, emerging markets have underperformed in recent years, so there’s a chance they could potentially outperform in the years ahead.

An easy trade to make 

Interested in gaining some portfolio exposure to emerging market stocks? It’s not hard to do. 

One of the easiest ways to get exposure to the world’s emerging markets is through investment trusts. On the London Stock Exchange, there a number of trusts that offer exposure to these markets, including:

  • Fundsmith Emerging Equities Trust, which is run with a similar philosophy to that of the Fundsmith Equity fund

  • JPMorgan Emerging Markets Investment Trust

  • Templeton Emerging Markets Investment Trust

Exchange-traded funds (ETFs) can also be an easy way to gain exposure to the emerging markets.

Examples of ETFs that focus on the emerging markets include:

  • Vanguard FTSE Emerging Markets ETF

  • iShares MSCI Emerging Markets ETF

FTSE 100 stocks with EM exposure

It’s also worth pointing out that many UK-listed companies generate a large proportion of their revenues in the world’s emerging markets, so could also provide you with exposure.

Examples include:

  • Prudential, which is now mainly focused on selling insurance and other financial services products in Asia

  • Unilever, which generates over 50% of sales in the emerging markets

  • Diageo, which expects another 750m consumers to be able to afford its premium spirits by 2030, thanks to growth in the emerging markets

All in all, there are plenty of ways to get exposure to the emerging markets. 

Think long term with the stock market

Of course, emerging market stocks can be volatile. It’s important to be aware of the risks.

However, all things considered, having a little bit of exposure to emerging market stocks, with a long-term view, could be a good move, in my opinion. 

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Edward Sheldon owns shares in Unilever, Diageo and Prudential. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo and Prudential. 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.