Castlestone Management is launching a global emerging markets fund investing in the ‘Next 11' developing countries of increasing importance outside the established Bric states.
Coined by Goldman Sachs, the architects of the Bric model, the Next 11 concept encompasses a diverse mix of global emerging market countries - from the well researched economies of South Korea and Turkey, to the less popular such as Iran.
South Korea is the most developed of the Next 11, with 40% of the group's combined market capitalisation. However, as the country has become more established since Goldman came up with the concept in 2001, Castlestone only plans to hold 10% of its Next 11 Emerging Markets fund in South Korea.
About 65% of the portfolio will come from the core countries - Mexico, Indonesia, Turkey and the Philippines. Up to 25% of the fund will be in Egypt, Vietnam, Pakistan and Nigeria, while the vehicle may also have a small exposure to Iran and Bangladesh.
"Goldman came up with this term just as Bric was really taking off. They looked ahead and tried to identify what was going to be the next derivative, and it was the Next 11," Castlestone emerging markets portfolio manager Arrash Zafari says.
"These are a group of countries which could have a Bric-like impact on rivalling the economic importance of the G7 nations. Bric will always be number one in future importance to the global economy, but the Next 11 will also have a major impact.
"Bric did work as an investment concept, particularly in the early days. We feel the Next 11 is at a similar point to early Bric. It has the cheaper valuations and the lower correlation to developed markets. This concept gives you a second shot at the BRIC-like investment theme."
While the fund's exposure to Iran and Bangladesh will only be about 5%, Zafari says there is strong potential upside in these countries.
"There are risks in Iran obviously, but the rewards can also be great. Iran has a market cap of around $80bn, but foreign participation is just $150m," he adds.
"It was the only market to go up in 2008, which shows how uncorrelated it is. The market is trading at six-times and has a 15% dividend yield. We will use a third-party fund to gain exposure to this market."
The Castlestone Next 11 Emerging Markets fund will be launched early in the fourth quarter.
Next 11 Countries
Korea
Mexico
Indonesia
Turkey
Philippines
Egypt
Vietnam
Pakistan
Nigeria
Bangladesh
Iran
Silly
BRIC made (and makes) sence because of their growth an d impact on the world.
Ideally in 25 years a fund which contains Nigeria, Iran, Banglidesh may make sense.
Unfortunately you will get returns like Russian Brazilian and Indian investors got 20 years ago before BRIC - big losses
This is a marketing stunt - with no investment sense
Posted by: Craig Reiley
27 Aug 2010 | 12:21
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