Invest in emerging markets, fund chiefs are advised
Published 17/09/2010 | 05:00
PENSION fund managers and trustees have been warned that they are putting their investments at a risk by failing to consider putting money into equities in emerging economies.
Consulting firm Mercer said too much equity investment was in developed economies despite massive public and private debt issues.
Head of investment consulting at Mercer, Brian Griffin, said the continued strong growth in developing countries, with favourable features such as young and expanding populations, was not being captured adequately by many investors.
Too many institutional investors were too heavily invested in developed countries.
A strong bias is still evident towards countries suffering from structural disadvantages, such as excessive public debt burdens and weak bank lending, he explained.
Mr Griffin said: "The growth trajectory of developing countries was only briefly interrupted by the financial crisis whereas many developed economies now face public, corporate and private debt issues that will take many years to work through.
"These, combined with increased regulation and potential policy errors, are likely to act as a brake on economic growth in the developed world."
Equities continue to be a significant component of most portfolios, but investors should ensure they have access to broad equity market returns, Mr Griffin said.
The problem is that many equity strategies are biased in favour of developed countries and also large cap stocks, and this is likely to increase fundamental risk and may compromise returns.
"We appear to be in the opening act of a fundamental rebalancing of the global economy. It is a brave investor who would take such a significant bet against the emerging world and other growth engines," he added.
Mercer's research outlines that there is a strong argument for diversifying away from developed markets.