Ignis Asset Management has introduced the Ignis International Emerging Markets Select Value Fund, a highly differentiated proposition in the emerging markets space. The fund will employ a top down value-driven strategy to actively allocate capital – via index futures and tracker funds – to the most attractive emerging countries, rather than to individual stocks.
Managed by James Smith, Head of Global Funds, the fund will utilise Ignis’ proprietary MASAM (Market and Sector Allocation Model) quantitative screen to rank the 22 countries in the MSCI EM Free Index, and will also invest in selected frontier markets.
Based on value, macro, technical, earnings, monetary, momentum and quality criteria and the judgment of James and his experienced team, the fund will take a high conviction overweight or underweight exposure to markets, reassessing allocations on a daily basis.
Investments will be made primarily through index futures and other ‘Delta 1’ instruments – such as tracker funds and, in some cases, swaps – thus, the fund aims to take country risk rather than company risk.
Typically the countries deemed most attractive will be given an active weight of up to +5% against benchmark and if markets are deemed very unattractive, then they may be given a zero weighting. Rather than set explicit price targets for markets, the fund will wait for them to return to the model’s assessment of fair value.
Portfolio turnover is expected to be below 50%. As the team is not dependent on sell side investment ideas trades are usually made at execution only commission rates, which should minimise the trading costs to the fund and add to investment returns.
James Smith (pictured), manager of the Ignis Emerging Markets Select Value Fund, says: “Our research shows that the majority of the variance in emerging market stock prices can be attributed to overall market conditions – in particular how the market perceives the country – rather than stock specific factors.
“The fund will seek to exploit this by using our proven proprietary MASAM model to allocate capital to countries rather than to individual companies. MASAM’s allocation characteristics will mean the fund will also have a value bias, which contrasts with many other emerging markets funds, which typically seek growth stories in individual stocks.
“We believe that by focusing on relative value opportunities and the mean reversion principle the fund will outperform and deliver significant alpha over the long term. The value bias of the fund means that it sits well alongside traditional growth funds to provide diversification among emerging market portfolios.”