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‘Gold nationalisation’ and political interference alarm First State’s Finegan
Co-manager of the First State Global Emerging Markets Leaders fund talks about investing in consumer companies and natural gas.
Government interference in companies is unnerving fund manager Glen Finegan, leading his First State Global Emerging Markets Leaders fund to shun the state-owned firms that find a home in many of his competitors' funds.
Many emerging market funds count state-owned, or partially-state owned, companies in countries such as China, Russia India and Brazil among their top holdings.
‘We have been concerned about government interference across all our funds,' Finegan said, 'whether it is in resources, utilities, telecoms or commodities, where governments are trying to take more profit. It makes us nervous'.
He said that ‘gold nationalisation’ had been a key factor behind the fund’s reduced gold weighting in recent months, as governments looked to take on a higher proportion of the profits.
With the fund’s biggest bias remaining a 32% weighting to consumer staples, Finegan said he had been trimming some of the more expensive consumer stocks despite their ‘fantastic long-term prospects’ and recycling some of the proceeds further afield into cheaper stocks in countries such as Chile and South Africa.
‘We have been surprised at how well we have kept up with the rally since the end of 2011, and consumer staples companies have been a key factor. They are fantastic long term, but when there is too much built into the share price we will reduce,’ he said.
‘We won’t move down the quality scale and won’t buy poor-quality companies just because they are cheap, because we are valuation-sensitive investors.’
Gas: 20-year growth theme
Finegan said one key growth theme for the fund has been the growth in demand for natural gas, and he said the growth in shale gas would remain a significant theme for the next 20 years. Hong Kong & China Gas was the fifth largest holding at the end of March.
Elsewhere, Finegan said he was mindful of how the inventors of disruptive technology are rarely the key beneficiaries of the changes they bring about. He's looking very closely at the growing impact of the internet on the traditional retail sector in emerging economies.
‘The rapid uptake of the internet in global emerging markets means we are watching closely whether some consumers may go straight to the internet and leapfrog traditional retail,’ he said. Similarly, the team are looking at how mobile phone technology could affect more traditional companies if consumers turn straight to mobile technology.
At the end of March stocks that can benefit from increasingly rapid globalisation continued to dominate the fund’s key investments. The biggest investment is in Taiwan Semiconductor, and brewing giant Anheuser Busch InBev was second.
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