The acronym 'BRIC' was coined in 2001 to represent the four nations set to reshape the global economy - Brazil, Russia, India and China.
Fourteen years later, these countries remain in the spotlight and have maintained a significant presence in the developing world. Yet the relationship these four countries share with the rest of the world has changed. In light of this, fund manager Kunal Ghosh has felt it necessary that the Allianz BRIC Stars Fund evolves alongside the changing global landscape.
Kunal Ghosh and his team took over management of the fund in October 2013. While they have maintained its focus on the BRICs, it is now anchored less to these areas. Up to a third of the portfolio can be invested outside of the BRIC countries and the team have gradually exploited this flexibility to a greater extent. Most notably, exposure to Taiwan and South Korea has increased.
The fund's entire Taiwanese exposure is currently invested in technology businesses. Many of the parts used in the products of large, global technology firms, such as Apple, are manufactured in Taiwan. Kunal Ghosh has invested in companies he believes are set to benefit from rising demand for these parts.
Source: Allianz Global Investors, correct at 31/03/2015
India represents the fund's largest country weighting. This positioning has provided a significant boost to returns, particularly in 2014. The manager has recently been taking profits from Indian holdings following a period of market strength; however, he is happy to maintain a large allocation given his longer-term positive outlook for the region.
Kunal Ghosh is increasingly positive in his outlook for China. He is happy to see the economy moving away from one focused on infrastructure investment, to one focused on services and consumption. China is also successfully undergoing financial reform, in the manager's view, including opening up Shanghai's stock market to global investors.
The manager is more cautious on Brazil in light of ongoing corruption and falling commodity prices. Despite this, he believes domestic consumption remains strong, which he expects will benefit holdings including Cielo, Brazil's largest credit card processor.
In 2014, Kunal Ghosh felt Russia's stock market suffered from an overreaction to the Ukraine crisis. He sees geopolitical risk declining this year, though he is aware economic uncertainty remains. According to the manager, Russia is home to a number of successful export franchises. As such, the fund's Russian exposure is focused on external-facing businesses and exporters, rather than domestic businesses.
Kunal Ghosh has gradually tilted the overall portfolio towards consumer-related businesses. Since the 2008 financial crisis, this type of company has performed particularly well - he expects this to continue as emerging countries begin focusing on domestic consumption rather than relying on exports for growth.
The fund has the ability to invest in smaller companies which, along with exposure to emerging markets, adds risk.
Our view on this fund
Since taking over the fund, Kunal Ghosh and his team have outperformed their benchmark (an index constructed of the BRIC markets), as well as the broader MSCI Emerging Markets Index. Though please remember past performance is not a guide to future returns. The significant allocation to India has helped over the period, while our analysis suggests stock selection has also added value.
At present this adventurous fund does not feature on the Wealth 150 list of our favourite funds across the major sectors. The team's longer-term track record is not as strong as it has been over the past year, so we would prefer to monitor their performance over a prolonged period. In addition, we currently favour less-constrained funds with more flexibility to invest across the broader emerging markets.
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