Hartwig Kos explains how the Baring Dynamic Emerging Markets Fund draws on diversified growth experience
At the moment, we have over a fifth of total assets invested in Australian government bonds, which offer us significant diversification benefits in choppy market conditions.
Similarly, our 8.5% allocation to gold, despite the precious metal’s recent sell-off, continues to provide us with diversification uplift and some risk reduction qualities for good measure.
Despite this challenging market backdrop for all risk assets – developed and emerging – we remain convinced that the secular growth story for emerging markets remains intact.
In this regard, we believe that the majority of investors are capable of differentiating between countries and markets with better growth dynamics and lower debt levels versus those countries still clinging to the boom-bust strategies which got them into trouble in the first place.
Nonetheless, we should point out that in periods of market tension, economic fundamentals can often account for less and hence it hasn’t surprised us that emerging markets have been particularly exposed to the most recent sell-off across global equity markets.
For that reason we have been tactically cautious on emerging equities, with around a quarter of total assets invested.
Our fund’s investment approach affords us this opportunity to dip out of our core market when we need to, in order to limit potential losses.
Within our equity allocation, we currently have a higher weighting to markets where the economies are further into the monetary policy tightening cycle than others.
We believe this should support market performance as and when inflation pressures ease.
An example of this is India. It has quickly become a demographic hotbed and this is complemented by a rising middle class that shows a willingness to spend on new housing, use a range of financial products to help them achieve this, and spend hard-earned disposable income on luxury goods and personal technology.
The flight to safe haven assets, but to where exactly?
In recent weeks the term ‘safe-haven’ has become an overused cliché and generally applied to anything that doesn’t demonstrate unpredictability and volatility in price movements.
