Emerging economies are among the few that still show strong growth in the current global environment but this does not necessarily translate to booming equity markets, a senior portfolio manager at AllianceBernstein said.
Emerging markets have a number of fundamental advantages over developed market economies, including population growth, rising education levels, lower fiscal deficits and low debt-to-gross domestic product ratios, AllianceBernstein's Morgan Harting said.
"Now all this sounds great, but I could have told you the same story at the beginning of 2011 and you would have done yourself a disservice to put your money there," Harting said.
Over 2011, the MSCI Emerging Markets Index underperformed the MSCI World Index by 12.9 per cent in Australian dollar terms.
However, switching between equities and bonds might help mitigate some of the volatility of equities, while producing better investment results, according to Harting.
"We believe that a multi-asset approach can reduce the volatility of emerging market equities without sacrificing return potential," he said.
Harting and three colleagues are running a newly established fund that uses a dynamic asset-allocation process to switch between emerging market equities and bonds, while also managing currency exposures.
The fund, which is called the Emerging Markets Multi-Asset Strategy, has been operating live for just over six months and so far holds about US$70 million in funds from external clients.
The strategy has a relatively wide mandate. Apart from investing in multiple-asset classes, it also takes a relatively broad approach to emerging markets exposures.
For example, the fund holds shares in Sumitomo Rubber in an effort to benefit from the booming but hard-to-access Chinese automobile industry.
Although Sumitomo derives a large percentage of its revenue from selling tires in emerging markets, it is listed on the Tokyo Stock Exchange.
Harting is unconcerned that advisers might struggle to place the fund in clients' portfolios because it doesn't fit into any of the traditional asset classes.
"I hope that people like that exist for a long time, because that type of [bucket] thinking is what creates the opportunities for us," he said.
The fund is available to Australian investors through a Luxembourg-based UCITS fund, but AllianceBernstein is also exploring the possibility of setting up an Australian-based fund.
