Investing in emerging markets, but with a lower volatility | FP Street ...

San Diego-based Brandes Investment Partners is best known for making a few, but very substantial changes to way it tries to meet the needs of Canadian clients. For instance:

???? In 2006 it signed a partnership arrangement with Sionna Investment Managers, a deal where the two parties share equally in the costs and the revenues. From Brandes? perspective the alternative was to retain Sionna as a sub-advisor;

???? In July 2011 it unveiled its first new mutual fund, the Sionna Monthly Income Fund, in more than five years;

???? In January 2013 it announced a new arrangement with Lazard Asset Management (LAM) to offer LAM mutual funds to retail investors in Canada. As with its deal with Sionna, the arrangement is a partnership. It?s understood that the partnership arrangement by LAM is its first in recent memory.

???? On Wednesday it announced the launch of the first two new funds under the LAM arrangement.

The two new funds are Lazard Global Equity Income Fund and Lazard Emerging Markets Multi-Strategy Fund. The former fund is a total return fund that, as the name suggests will invest globally with the stocks selected on the basis of their total return potential, not simply income.

The second fund is designed to invest in different asset classes (equity, debt and currencies) in emerging markets and end up with less volatile returns than, say, with index investing. ?The multi-asset allocation structure of the fund is designed to provide risk-conscious clients with access to emerging markets opportunities with lower volatility,? said Jai Jacob, a portfolio manager/analyst with LAM.

In an interview, Jacob said the fund incorporates five different strategies: emerging markets value; emerging markets growth; emerging markets small cap; emerging markets debt and emerging markets currencies. Jacob is one of the five members of the firm?s multi-strategy team that was formed in 2007. In all. LAM?s emerging markets group is home to more than 50 professionals.

?You need the appropriate number of people to be able to implement the strategy,? said Jacob.

In response to a question of why the company is launching a multi-strategy fund now, Jacob said that while many investors have ?bought into the broad macro idea of the emerging markets [they] end with a positioning that doesn?t reflect their conviction at all,? given that some of them have 1%-3% invested in those markets. ?We want to come up with a solution that could help investors allocate more to emerging markets,? said Jacob noting that a similar fund has been available and managed according to the same approach for U.S. investors and international investors since 2011.

As for the gap between what clients say they want and what they achieve, Jacob said, ?It?s pretty clear because of the risks and the volatility. We wanted to put together a strategy that could give them a lower volatility access point to the emerging markets,? he said, noting that volatility over a long period of time is about 25% ? or about 10 percentage points above what?s expected in the developed markets.

In this way, the goal ?is to deliver on the returns and the longer term themes in the emerging markets but do it at a much lower volatility,? said Jacob noting that the lower volatility will result ?from a balanced approach that will combine the different ideas of five different teams.?

Jacob said that one of the problems with a passive approach is that the current emerging market indexes represent about one-third of the universe of about 2600 emerging market stocks ? down from 50% a few years ago. Those ratios are based on comparing the Morgan Stanley Investible Market Index with the MS Emerging Markets Index. And LAM casts its net wider than the passive managers: Jacob said that investments can be made in about 30 emerging markets ? or about 50% more than what?s contained in the indexes. Of the current multi-strategy emerging market funds managed by LAM, Russia has the largest individual allocation. Equities account for about two-thirds of the overall assets in LAM?s emerging markets? funds.

As for fees, the expectation is that they will be about 2.7% a year.

As for the likely returns from the new multi-strategy fund, Jacob said that the expectation is that it would match the long term performance of the emerging markets which is about 8%-10% a year ? but with a lower volatility.

Source: http://business.financialpost.com/2013/02/28/investing-in-emerging-markets-but-with-a-lower-volatility/

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