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“And welcome to the morningstar series n. ask. The expert i m emma wall wall and here with me. Today is chris cole executive partner.
Nat towry. Hello chris cole good morning. Emma. How are you very well thank you how are you excellent today.
Thank you so we are here today to talk about the role nthat emerging markets should play in an investment portfolio broadly speaking. What does emerging nmarket exposure add to an investment portfolio. I guess in the main you are looking for equity nmarkets around the world to give you long terms growth potential perhaps more than nthe western markets tend do so and depending on your investment horizon nthat will not always but broadly dictate how much emerging markets exposure..
You should nhold isn t that right yes to a degree emerging markets will add npotential growth to a portfolio. But also potential volatility so it s by getting the risk return ncorrect for the investor. But obviously the longer you have to invest the more volatility nyou can expect to accept anyway. This should never be the core part of a portfolio nshould it emerging markets are one of those ones that are periphery holdings emerging markets are important i guess to nmost people s equity content.
But they can never be a large percentage. Because of the nilliquidity and the volatility they bring so then let s now look at the sort of ways nthat you can gain this emerging market exposure. Say you are young you are just beginning nto plan for the long term say in a sipp. What sort of percentage should you be looking nat and how can i gain exposure to emerging markets.
I think the first thing is you look at your ntotal equity content and if you are a long term investor maybe adding to on a regular basis naround as a lump sum. You could easily be looking. At 70 equity in total..
It s quite na big portion. But then if you segment that down to the different geographical regions. Nand emerging markets per se. You could easily be expecting to have sort of 10 of your entire nportfolio in emerging markets and that s part of a well diversified portfolio yes.
I mean the key thing is emerging markets nhave become more correlated over the years to western markets. So whilst you re still ngetting the potential for that sort of kicker on the growth you still get the volatility nif the dow jones index goes down and absolutely we have seen that correlation nover last. Year ben bernanke announced that the us. Was going to taper its quantitative neasing programme and.
Actually it wasn t the us. Stock market that felt it the worst nit was the fragile five. I think you have to sort of conscious of is nthere is this globalisation that we have been through over the last 10 years..
It s less nobvious that emerging markets will give you the growth over and above anything. Else. And nalso. You have got the currency issue.
Too to think about the dollar is primarily what na lot of these countries work against and if the dollar is strong does have an effect nin emerging markets et cetera so how does one gain emerging markets exposure well. I think there is two ways you could do nit well there are several ways you could do. But for a normal investor. You can either nuse.
A passive approach. Where you buy an index that tracks a basket of the emerging market neconomies or you can employ an active manager that can be more country specific and both nhave their own merits and we ve mentioned there the scenario for nif. I have a long term investment horizon as i go towards retirement..
What should i nbe doing with my emerging markets exposure in general terms if you go to finite points. Nwhere you need certainty on the amount of capital. You ve got then you d be tapering nit down. So in our sort of more aggressive portfolios that 10 figure is the norm.
But nthat can easily be brought back down to 2. If you re someone who is sort of very close. Nto. Needing the capital chris thank you very much you re welcome thank you ” .
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