GLOBAL - Nomura Asset Management plans to launch an emerging market small-cap strategy that will determine holdings according to a country's gross domestic product adjusted for purchasing power parity.
The strategy, the Nomura Emerging Wealth Strategy (NEWS), will launch on 22 February as a UCITS fund, and has already attracted $23m from a UK-based local authority pension fund, said Mark Roxburgh, Nomura's head of marketing and client services. He declined to name the scheme.
"The future consumers of the world are in emerging markets," said Roxburgh. "We can target these future consumers by adjusting for GDP and PPP."
The aim is to invest in countries and companies that will generate more wealth than others. Countries like China, Russia and Mexico are overweight the MSCI Emerging Markets Small-Cap index. Meanwhile, relatively wealthier countries like South Korea, Taiwan and South Africa are drastically underweighted.
According to data from Nomura, the strategy has outperformed the index by an annual nine percentage points since 1 April 2004, 10.5 percentage points in the past five years and 3.8 percentage points in the past three years.
Nomura has been marketing the strategy to European pension funds, and expects to raise about $100m in a year.
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.