Indirect EM plays keep global equity manager on top

Profit lies outside of developed markets but US and European-listed stocks are still preferable says Union Investment’s mega fund manager André Köttner. The change towards a less US-dominated MSCI index is gradual.
 
US-listed stocks, picked for their exposure to the emerging market growth story, make up 46% of the 5.8 billion euro global equities fund, Uniglobal.
 
Asian-listed stocks remain a single-digit percentage of the fund despite regional exposure to China, the only country that can still boast growth forecasts of 9-10% for this year.
 
‘I would rather invest in US and European-listed companies with emerging market exposure since there is less political risk and more reliable data and in most cases a cheaper valuation than for the local companies,’ says Köttner.
 
Despite US stocks making up nearly half of the fund, the US weighting is still below average according to the MSCI World index.

Asian-listed stocks remain a single-digit percentage of the fund despite regional exposure to China, the only country that can still boast growth forecasts of 9-10% for this year.
 
Köttner's position is, however, not conservative compared with the benchmark.

52.6% of the MSCI World index, which tracks stocks listed in developed market countries is made up of US-listed companies.
 
‘Over the 5 years, I think we could see the weighting in Asian stocks (exclusive Japan) increase from 5.6% to 8% or 9% but I don’t think we will see the share increase to much more than that.’
 
The MSCI index weighting towards Asian stocks ‘will only change gradually’ says Köttner, adding that the relatively smaller market cap of Asian stocks against their non-Asian counterparts means that their weighting on the index is limited.
 
The index is also used as the benchmark for other mega funds in global equities such as the 4.5 billion euro DWS Vermögensbildungsfonds.
 
UK and Japan-listed stocks make up the next largest weightings in the MSCI index, both over 9%. Exposure to Asian (ex Japan)- listed stocks is below 6%.
 
Return without risk?
 
With only a slow rebalancing of global stock markets towards Asian-listed companies, the emerging market growth story can be comfortably played with US-listed aces, says Köttner.
 
‘Just because a company is listed in China or Hong Kong, it doesn’t mean that it will benefit more from Chinese growth than other companies.’
 
‘For example, commodity and resources companies based in Europe make the biggest part of their profit from Chinese demand.’ 
 
Despite warning from the International Monetary Fund last Friday that global growth estimates for 2012 may need to be revised, Köttner  says he still believes in longer term trends such as population growth, climate change and digitization.
 
‘Hunger for natural resources in emerging markets remains unbroken’, says Köttner who is overweight materials for this reason.
 
The fund is also overweight in the technology, healthcare and non-discretionary consumer goods.
 
‘Customers of the toothpaste company Colgate, for example, at the moment may brush their teeth twice a day in the US and only once on average in India,’ says Köttner.
 
‘But actually the growth in numbers of customers in India will keep growing whilst in the US, it is likely to remain the same.’
 
Köttner has outperformed peers in the global equity sector in the last three years, returning 38.8% compared with 26.8% according to Citywire data.