Barclays Capital sees emerging market currencies as a potential "third" way to access EM markets
Barclays Capital Fund Solutions, the fund management arm of Barclays Capital, believes investors should consider emerging market currency funds as an alternative to ‘traditional’ emerging market equity and bond investments.
The business, whose own fund provides exposure to 15 emerging market currencies, believes investors should consider currency funds as a “third way” of gaining exposure to emerging markets.
Barclays GEMs, which launched in July 2006 as an index and May 2008 as a UCITS III fund, is designed to provide investors with a focused play on a diversified basket of 15 emerging market currencies. While providing investors with a generally low correlation with traditional asset classes the fund has delivered a net return of 27 per cent since launch until 31st January 2011 with an average annual volatility of 9 per cent.
Commenting, Nathan Bance, Director in UK Investor Solutions at Barclays Capital said: “The long term growth prospects of emerging markets means it is a sector that continues to attract a high level of interest from investors looking for exposure and access. While traditional equity and bond funds continue to attract the lion’s share of assets we believe that the possible returns on offer through exposure to leading emerging market currencies, combined with the relatively low correlation they have with other asset classes, means investors should not ignore their potential.
“Our own research broadly expects emerging market countries to raise interest rates which will in turn benefit the rate of interest generated from the GEMs fund’s exposure.
“In addition, the fund is currently exposed to currencies which are trading at approximately a 50 per cent discount to PPP (Purchasing Power Parity). Evidence suggests that as the wealth of a nation, and its citizens, increases its currency becomes more closely priced to the Dollar and therefore more expensive, should this occur, the fund is well positioned to take advantage of this for the benefit of investors.”