INVESTING TIPS: Top fund and trust ideas for emerging markets

By Marc Shoffman for

If you want emerging market funds to add some worldwide flair to your investments, read This is Money's experts' recommendations.

From the bafflingly wide range, they have picked some ideas to use as starting points for what will hopefully be successful investing.

Of course, which fund is best for you depends on your individual circumstances and what investing story you think will unfold. So, always do your own research, choose your investments carefully and hopefully you will make your own good investing luck.

On the up: Emerging markets such as Brazil are where much of the world's growth is expected to be over future years.

On the up: Emerging markets such as Brazil are where much of the world's growth is expected to be over future years.

How to use our fund and investment trust ideas

This is Money asks our panel of experts to suggest investments for a variety of investors.

These are people with a long history in the investment field and looking at their choices gives you some pointers. But remember, these are just ideas and whether a particular fund is right for you is your own decision and making that requires deeper research.

Their ideas are suitable for investors opting to use an Isa wrapper or not. Go to the bottom of the page to find out why we like investing through an Isa.

Read the tips, follow the links to the funds' performance and read This is Money's Investing section to gather ideas. If you have any doubts, talk to an IFA [find an adviser].

Why emerging markets?

Emerging markets is a broad term. It can cover everything from big hitting China and Brazil, to up-and-coming Indonesia and onto the new investing frontiers of Africa.

The lure for investors is greater growth and younger economies than typically found in the developed West and emerging markets have delivered strongly on this over the past decade.

The trade-off for this growth is higher volatility and more risk. Emerging markets investments tend to get punished in the short-term when turbulent times hit, in the long-run though they are tipped to outperform.

Many investors consider emerging markets funds an essential part of their portfolio, but experts say they would be very wise not to stick their house on them.

The case for emerging markets is that these strong growth economies are one of the best long-term bets around, especially for those making regular investments using their annual tax-free Isa allowance.

But remember emerging markets success is not guaranteed and never put all your eggs in one basket. It is also worth remembering that risk varies throughout this broad category, an overall emerging markets fund will be spread across a variety of countries and continents, others are region, country or sector specific.

The expert's emerging markets fund ideas

Damien Fahy, of Fund Expert highlights Jupiter India

Ongoing charges: 1.09 per cent

Yield: 0.5 per cent

The Jupiter India fund invests in companies which operate or reside in India. It will also look further afield for firms based in Pakistan, Sri Lanka and Bangladesh and in companies which derive a significant proportion of business from or within India.

Mr Fahy says: 'Those looking for a focused exposure to an emerging market should look at Jupiter India. India can sharply outperform, despite global wobbles, as domestic investors grow increasingly confident about the future, and their government’s commitment to reform.

'The Indian stock market has turned a very important corner - the reward for greater clarity over much needed reforms to set India on a very long run recovery.

'There is almost no demand from UK investors, despite it being more than twice the size of the EU population (including the UK) and with extraordinary potential. Jupiter India is up considerably since the recent lows in September, but investors must be comfortable with volatility.'

Adrian Lowcock, independent investment analyst, highlights: JPM Emerging Markets Income

Ongoing charges: 0.93 per cent

Yield: 3.8 per cent

This fund invests in shares of emerging market companies. Big regional exposures include Taiwan, South Africa and Hong Kong.  

Mr Lowcock says: 'Manager Richard Titherington’s focus is on the future, where earnings and profitability will be in five years’ time, not currently. He holds between 50 and 80 companies with about 60 per cent invested in companies that yield 3 per cent and can grow their dividends, 20 per cent in low yielding companies with significant potential to grow their dividends and the remaining 20 per cent in high yielding companies with dividends over 6 per cent. This diversification means the fund is able to deliver a combination of an attractive growing dividend and capital growth. 

Adrian Lowcock, of Hargreaves Lansdown, also highlights: Fidelity Emerging Markets

Ongoing charges: 1.1 per cent

Yield: 0 per cent

This fund invests in companies listed or operating in a number of emerging markets.

You will find investments in India, South Africa and companies listed in the United States, but conduct business in emerging markets.

Mr Lowcock says: 'This fund is a best of breed portfolio with a concentrated fund. Manager Nick price focuses on investing in good companies at the right price. He is looking for companies able to deliver strong growth and higher return on investment. Price has favoured South Africa and Sub-Sahara where he sees clear growth opportunities as the region develops. This fund is more suitable for investors willing to take on risk as It is likely to be more volatile.’

Darius McDermott, of Chelsea Financial Services, highlights Lazard Emerging Markets

Ongoing charges: 0.92 per cent

Yield: 1.9 per cent

This fund looks for the ‘global brands of tomorrow’ in emerging markets.

It has regional exposure to Asia, Latin America, emerging European markets and Africa.

Mr McDermott says: ‘Many leading global brands are now emerging market companies and this fund uses a 230-strong team of investment analysts to identify the global brands of tomorrow in these developing regions.

‘The managers take a bottom-up, stock-picking approach to achieve this and use market volatility created by macroeconomic concerns to time entry and exit opportunities. This strong value discipline has led to this being one of the stand-out funds in its sector.’

Investment trust emerging markets ideas

John Newlands, of Brewin Dolphin, highlights Templeton Emerging Markets Investment Trust

Ongoing charges: 1.29 per cent

Yield: 1.3 per cent

This investment trust has a big Asia Pacific equities bias. Its main regional exposures is to Hong Kong & China, Brazil and Thailand.

Mr Newlands says: 'Templeton Emerging Markets Investment Trust, run by Mark Mobius, was launched in June 1989. Over the intervening two decades and more shareholders have received handsome long-term investment returns – noting, though, that performance has proved choppier over shorter periods.

'He remains of the view that emerging market countries continue to benefit from large fiscal reserves and strong macroeconomic trends. He considers that emerging markets are therefore still in a generally sounder position than many developed economies for whatever the future holds.

'In summary, Templeton Emerging Markets might be described as the ‘IBM’ of the global emerging markets trust sector, offering a blend of competence, size and share liquidity that are hard to match. We are happy to recommend it as a medium to long-term Buy on this basis.' 

Why invest through an Isa?

Investing with an Isa is one of the few opportunities we have for making money with very little tax but it doesn't offer complete tax-free status.

Every year the Government gives us a tax-free Isa allowance.

Your Isa allowance for 2015/16 is £15,240 under the New Isa regime. You can move money from an investment Isa into a cash Isa under the new rules or put your whole allowance in a cash Isa. This applies to any money you have invested in previous years.

Any gains within an Isa are free from capital gains tax. Everyone has a CGT allowance of £11,000 per year and many may feel they are unlikely to ever make more than this in profit each year from selling their assets.

However, those who invest consistently over time may one day be surprised at how much those investments are worth and holding them in a tax-free wrapper makes sense.

This is because if they opt to sell all or a large amount of their investments at one time and they are not held in an Isa, then they may be over the capital gains tax limit and face a tax bill. Whereas, hold them in an Isa and you have no such problem and will not even need to fill in a tax form if you sell.

Income from investments is also treated in a more tax-friendly way in an Isa. Corporate bonds and gilts income is tax-free.

Dividends and shares income are still taxed at 10% before they are received, so basic rate taxpayers will not gain any extra benefit, but higher rate taxpayers do not have to pay any extra tax that would normally be incurred.

if you are a basic rate taxpayer you may hope to be a higher rate taxpayer one day, so putting your investments in a tax-free wrapper is a sound tactic. Investing through an Isa also removes the headache of filling in a tax return for both income and capital gains.  

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