International share funds return 34% – Zenith explains where to from here
International share returns solid for 2013.
While 2013 isn’t quite over yet, global and emerging markets have returned far greater results than one would have expected at the start of the year. One year returns (as at 30 September 2013) for the MSCI World ex Australia and MSCI Emerging Markets indices (in $A) were 34.0% and 12.3% respectively.
Bronwen Moncrieff, Head of Research at Zenith Investment Partners (Zenith) said “I would hazard a guess that if you went back 12 months, not many people would have predicted results like this.”
International Shares is the largest sector review that Zenith undertakes. Zenith’s 2013 International Shares review includes Global (unhedged and hedged), Global Emerging Markets, Global Small Cap, Country and Regional funds (Asia ex Japan), Global Listed Commodities, Global Private Equity. The sector review also considers the key issues likely to face the asset class in the coming years.
“The impact of globalisation continues to influence the way companies structure their businesses and the way investment managers research and assess the likely success of those structures. Increasingly, companies have sought to expand or develop their operations by targeting exposure to the thematic of changing global demographics – specifically, changing consumer preferences and rising wealth of the urban middle class within emerging market economies”.
“We think this is only going to become more pronounced. Going back five or ten years, the level of company reporting on where revenues were sourced from was limited. Now, it has almost become standard. It goes without saying, where a company is listed is becoming less and less relevant. It is all about where revenue and revenue growth is sourced from.”
“Overall, managers have generally fared well. Within emerging markets, while an annual index return of just over 10% is nothing to be sneezed at, the difference in returns versus the global index certainly begs the question why?” Managers covered in the review consistently pointed to the managed slowdown of economic growth in China, high wage growth in a number of emerging market economies and high inflation all being contributors to the relative underperformance”.
“On the positive side of things, managers also noted that the sector maintains a number of attractive characteristics. For example, growth rates generally in excess of those for developed markets, ample room to implement fiscal and monetary stimulus if required, significantly lower levels of debt than many developed markets, and attractive valuations.”
“Currency has also been a big contributor to a client’s overall return. The difference in the one year return (ending 30 September 2013) between hedged and unhedged versions of the MSCI World ex Australia index was 8.7% – to the benefit of the unhedged investor. While the $A has certainly declined over the last 12 months, if you consider the level of the $A in terms of long run purchasing power parity, valuation continues to remains on the high side. While we certainly don’t advocate investors making active currency decisions based on near-term currency predictions, clearly there are risks over the short-term given the volatility of the $A.”
Zenith’s International Shares Sector Review represents the largest sector review undertaken by Zenith. Of the 101 global, regional and specialist funds that took part in Zenith’s International Shares Sector Review, 16 funds achieved Zenith’s top rating.
