Asset management specialists Schroder Investment Management Australia has launched a ‘top-down’ strategy for emerging markets that will focus entirely on country allocation.
The Schroders Global Emerging Markets Equities Top Down strategy has received an initial investment from AMP Capital Investors Future Directions Fund, and aims to outperform the Morgan Stanley Capital International (MSCI) emerging markets free index by in excess of 2 per cent per annum over rolling three-year periods.
In contrast to conventional ‘bottom-up’ emerging market products, this strategy will not focus on stock selection but take a broader approach based on countries.
According to Schroders chief executive in Australia Greg Cooper, the ‘top-down’ approach was adopted after research into equities performance in the emerging markets found a significant margin between the best and worst performing countries.
“In emerging markets, often you find the best stock in the worst performing market underperforms the worst stock in the best performing market, highlighting the importance of getting your country picks right,” he said.
Cooper explained that the top-down strategy worked by employing a quantitative model that examined various “technical factors such as the current momentum in market valuation levels and economic conditions. It then determines the relative weights for country allocation.”
The strategy covers all 26 countries in the MSCI universe and currently recognises Brazil, Russia, Thailand, and Turkey as attractive valuations, with strong earnings per share (EPS) and declining interest rates.
The strategy will only be offered to Australian institutional investors on a segregated basis as a stand-alone product, but Cooper said that nothing should be ruled out for the future.
“We launched the strategy in response to client demand. Most products available in the emerging markets space have tended to have a more bottom up bias. So for AMP it was all about diversification of their holdings, enabling them to build a better blended portfolio,” Cooper said.
“However, the traditional bottom up approach is still available to retail platforms and institutional investors via the Schroder Global Emerging Markets Fund which launched October 2006.”
