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Baillie Gifford keen on emerging markets

Emerging markets offer investors the best growth prospects, according to fund manager, Dominic Neary


Neary, speaking at the Unique Boutiques conference in London on 10 March, was outlining why the UK, the traditional home for equity income investors, may not meet long-run requirements and why a global fund may offer greater opportunities for income, growth and diversification.

He said that income investors needed to retain real value of their capital and income and the best way to do this was through income orientated equity investing. “It offers real growth, more predictable returns and long-term outperformance,” he said.

Baillie Gifford, the Edinburgh-based investment management group, has changed the name of its UK Income Fund to Global with emerging markets of particular interest.

Neary said that an exclusive high yield focus was dangerous and could lead to an erosion of purchasing power and capital value with deteriorating fundamentals. However, the global fund will target above average yield for the portfolio as a whole and make individual stock yields a secondary consideration.

As an example of the fund’s holdings, Neary cited the Sichuan Expressway, a toll road operator which holds a near monopoly in that region and has a good growth profile. The province is benefitting from the central government’s investment into the region to help reduce the east/west economic divide in  China.

Traffic volumes in the region are increasing by about 20% a year leading to strong growth in toll revenues helped by the provincial government’s expressway building programme.

Despite the fund’s global nature, it will hold about 20% of its investments in the UK to “minimise the currency risk” with another 20% in emerging markets and up to 27% in North America. The largest sector holding will be financials with about 27%.

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