Tune out ‘market episodes' in emerging economies: JPMorgan's Iwanicki

Volatility comes with the territory, says fund manager; sees Korea, Russia as good values right now`

Jun 2, 2011 @ 2:28 pm

By Jeff Benjamin

When it comes to investing in emerging markets, investors always should brace for “market episodes,” said George Iwanicki, co-manager of the JPMorgan Emerging Economies Fund Ticker:(JEEAX).

This is not to suggest that those episodes of volatility are any reason investors should avoid exposure to the fast-growing economies in developing nations.

“The emerging markets have had a very strong run over the past decade, but we've also experienced some episodes, and I have no doubt we will see additional episodes,” he said. “The fact is, the volatility of the emerging markets remains higher than what you might see in the developed markets.”

Mr. Iwanicki, who applies both top-down and bottom-up research methodologies, will invest in more than 20 emerging economies.

On a per-country basis, he currently views Korea and Russia as in value range.

Exposure to emerging-markets heavyweights India and China was reduced last year as inflation risks increased. This year, however, he is rotating back into Chinese equities.

“The strong run for emerging markets overall is a reflection of the improvements in the sovereign risk profile,” he said. “But at the same time, the macro risks were diminishing, thanks to improvements in corporate profitability in the emerging markets.”

While the market performance can be attributed to the strength of the macroeconomic risk profile, Mr. Iwanicki explained that it is also important to remember the continuing economic drivers across the emerging markets. That list includes urbanization, industrialization and infrastructure development.

The $200 million fund, which was launched in November 2010, has gained 4% from the start of the year.

This compares with a 0.04% average return for the diversified emerging-markets category as tracked by Morningstar Inc.

The Standard & Poor's 500 over the same period gained 4.5%.

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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