Portfolio Manager Perspectives

Jeff Benjamin

Suddenly, scores of emerging-market funds are emerging

Calvert latest to launch cross-border offering; 547 funds available — and counting

By Jeff Benjamin

Nov 5, 2012 @ 1:39 pm (Updated 4:36 pm) EST

Emerging markets

Calvert Investments has jumped on the emerging-markets bandwagon with the help of U.K.-based Hermes Fund Managers Ltd.

Launched Oct. 31, the Calvert Emerging Markets Equity Fund Ticker:(CVMAX), will apply socially conscious investing screens to a concentrated portfolio that will be subadvised by Hermes portfolio manager Gary Greenberg.

Hermes, which has $40 billion under management, manages $800 million in the emerging-markets category.

The new fund joins one of the fastest-growing and better-performing categories in recent years. According to Morningstar Inc., there have been more than a dozen diversified emerging- market funds launched already this year, bringing the category total to 547.

That is up from 356 at the end of 2008.

The fund category got a big boost in 2009 when it generated an average gain of almost 74%. Since then, the category was up 19.3% in 2010, down 19.9% in 2011, and has gained 11.6% so far this year.

By comparison, the S&P 500 gained 26.5% in 2009, 15.1% in 2010, 2.1% last year, and has gained 14.5% so far this year.

On the issue of a crowded marketplace, Mr. Greenberg countered that the flood of money and funds into the emerging-markets space is all the more reason for allocating to a more concentrated portfolio.

The Calvert portfolio of fewer than 50 stocks is currently most heavily weighted in China and Korea, but also has exposure to Russia, India, Nigeria and South America.

“Deep structural changes under way in the global economy are creating inefficiencies in emerging markets, as many local and retail investors lack the tools to adequately discount rapid social, political and economic developments,” Mr. Greenberg said. “The volatility caused by these changes means that, at times, quality companies in countries with conditions that are supportive to growth will trade at very attractive valuations, allowing us to profit from temporary bouts of adverse market sentiment.”

As a subadvisor, the Hermes team sends portfolio selections to Calvert where the various social and environmental screens are applied.

“We see a growing opportunity in emerging markets,” said Natalie Trunow, Calvert chief investment officer.

“Emerging markets remain the fastest-growing segment of the global economy, responsible for 85% of all global growth since the beginning of 2008,” she added. “While the pace has slowed, the estimated ranges of growth rates are still significantly greater than the estimated range of [gross domestic product] growth rates in developed countries.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

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