Where can today’s investors go if they are looking for growth and income?
As expansion in the developed world remains tepid, particularly in light of Britain’s recent decision to leave the European Union, and global yields continue to hover around historic lows, investors are increasingly turning to the emerging markets to help improve the risk-adjusted returns of their portfolios.
Within the emerging market universe, investors can gain access to some of the world’s fastest-growing economies including, but not limited to, India and China. They then have the further option of choosing between equities or debt securities issued by companies or the governments of developing world nations. But why limit your options, when you can have the best of both worlds via a balanced mandate? “As interest in the emerging markets grows stronger among the advisor community here in Canada, a hybrid approach might be more suitable for investors that want that exposure, but with lower volatility,” says Christine Tan, Chief Investment Officer, Excel Investment Counsel Inc. One such offering is the Excel Blue Chip Balanced Fund.
The target of the Excel Blue Chip Balanced Fund is to provide current income and long-term capital appreciation by providing exposure to emerging market bonds, through the Excel High Income Fund, and emerging market equities via the Excel Emerging Markets Fund, both of which are top-rated by Morningstar.
“As the name implies, this fund offers investors, tactically balanced exposure. The bond component of the portfolio provides interest income and stability, while the equity portion adds some octane to the fund by targeting high growth. We think this is an attractive option for advisors who want that balanced exposure without holding three or four funds, as we’ve already done the asset allocation for them,” notes Ms. Tan. Furthermore, putting all of a client’s emerging-market assets into one fund typically allows the advisor to pay a lower management fee, so there is a significant value add on that front as well.
Fund flows into emerging market debt recently set a new record for the week ended July 6, 2016, according to EPFR, a U.S.-based financial data provider, with a preference for emerging market Asia.¹ While on the equity side, data from the Institute of International Finance (IIF) show that there has been a turnaround in flows since the start of the year. Inflows of around US$37 billion in March, 2016, were especially noteworthy – see the chart below.² The shift of funds into the emerging markets has been largely attributed to the tempering of investor expectations that the U.S. Federal Reserve will embark on an aggressive campaign to hike interest rates, which was a widely held view leading into 2016.
The Excel Blue Chip Balanced Fund is an all-in-one investment solution that targets an optimal allocation of approximately 70-75% in emerging market bonds, with the remainder placed in equities of developing market companies. The fund’s strategy draws on the expertise of two stellar fund managers in Sergei Strigo, Head of Emerging Market Debt and Equity at Amundi Asset Management, and Christine Tan, Chief Investment Officer with Excel Investment Counsel Inc. Amundi is one of the largest asset managers in Europe and oversees approximately US$550 billion in fixed-income assets for both retail and institutional investors³; while Christine Tan, CFA, is a top-quartile manager with a track record of outperformance versus her benchmark, the MSCI Emerging Markets Index. Christine and her team generate alpha by actively investing in secular growth themes, within the emerging markets, such as healthcare, education and technology.
Under Ms. Tan’s oversight, Excel Investment Counsel Inc. can make tactical changes to the fund’s asset allocation, moving more money into fixed-income when markets are choppy due to macroeconomic uncertainty, and increasing the allocation to equities when the economic outlook improves.
Excel Investment Counsel Inc.’s approach is governed by a Quality Growth at a Reasonable Price or “Q-GARP” investment philosophy and their process is driven by top-down macro analysis, and rigorous bottom-up, company research.
Given the low to medium risk rating and broad exposure across emerging market debt as well as equities, the Excel Blue Chip Balanced Fund is viewed ideally as a core holding that investors can construct a well-diversified portfolio around. It is an actively managed solution that takes into account the profile of many Canadian investors who are seeing their long-term returns flat line, and therefore have an appetite for yield as well as growth, but at the same time shy away from volatility.
To learn more about the Excel Blue Chip Balanced Fund, click here.
¹ Bloomberg Business, Emerging Market Bond Fund Flows Set Record After Brexit Vote, EPFR Says, June 7, 2016.² Financial Times, Emerging market portfolio flows hit 21-month high, March 29, 2016.³ Amundi Asset Management, information as at, March 31, 2016. Morningstar Overall Five-star Rating for Excel High Income Fund Series “A” and “F” and Overall Four-star Rating for the Excel Emerging Markets Fund Series “A”, as at June 30, 2016. Morningstar Five Star Rating Disclaimer for The Excel High Income Fund (Series “F”) and Four Star Rating Disclaimer for The Excel Emerging Markets Fund (Series “A”) - Overall Rating © 2016 Morningstar Research Inc. All rights reserved. The information contained herein: (i) is proprietary to Morningstar and/or its content providers; (ii) may not be copied or distributed; and (iii) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.