Asset Management: It's a question of style
During the crisis in emerging markets, equity fund managers that have invested in Asia, Latin America and eastern Europe are most concerned with their exposures to specific countries. How much do they have in Russia, how much in Indonesia? According to a report by ING Barings, however, those portfolios managers may be asking the wrong questions. They should be analyzing how much they have in value stocks, how much in growth.
Getting the right mix of investment styles is a major influence on portfolio performance. "It turns out that a deterioration in credit quality appears to be strongly associated with the relative outperformance of emerging-market growth companies on both a current and prospective basis," writes ING analyst Simon Hookway.
Funds that bet on value stocks in Asia, during what seemed to be a market rebound in April, did well at first, as Asian markets bounced 50% led by value stocks. Since then, such stocks have underperformed.
Style investing is well established in the US, where two main styles are value, in which investors look for stocks that are underperforming but that have an asset or franchise value; and growth, where the emphasis is on companies with the potential for earnings growth.