Hartwig Kos explains how the Baring Dynamic Emerging Markets Fund draws on diversified growth experience
The value of being able to invest across a range of asset classes, with different risk-reward characteristics, truly comes to the fore during challenging and volatile times for the global economy and financial markets – in other words, the type of scenario we are faced with today.
It is a well-established argument that having a flexible asset allocation model can help reduce portfolio volatility and smooth returns during testing market periods.
Certainly, in the current market environment investors with such capabilities are making full use of this flexibility.
This is because, in many respects, the consistent performance of dynamic asset allocators during risk-off periods reflects their attitude to loss: there is something which can be done at the active level to limit the downside.
This might be increasing exposure to precious metals like gold, or raising allocations to government debt in markets such as Australia or the UK.
For many investors, this approach has already proved its worth in the form of diversified growth portfolios with cash or inflation plus targets.
However, we believe the same approach can usefully be adopted for investing in emerging markets too, where the long-term arguments about stronger relative growth rates than the developed west are well understood, but volatility is too high for many investors.
Drawing on diversified growth experience
We believe it is possible to draw on the experience of running diversified growth mandates to use a flexible asset allocation model to support investment objectives which target emerging market-like returns with less of the associated emerging market risk over a medium-to-long term investment horizon.
To meet this challenge, the Baring Dynamic Emerging Markets Fund was successfully launched in the summer.
The fund has been carefully developed so that as managers we have the flexibility to integrate defensive developed market assets (like Australian bonds) into the portfolio when times mandate such action.
The aim therefore is to reduce portfolio volatility and to smooth returns for investors seeking over the long-run, emerging equity-type performance with less of its known risks.
We seek to achieve this through active asset allocation and a willingness to move between different emerging market assets at different times, ranging from emerging equities and bonds to other assets such as commodities and currencies.
Certainly, in the current market environment we are making full use of this flexibility.