As Commonwealth Day is celebrated on Monday, it is a timely reminder that many of its 54 members make a unique route for saving. They share a framework of common values and goals including free trade but vary enormously in terms of their respective economic development.
Lord Rosebery coined the term ‘Commonwealth of Nations’ in 1884. Today this inter-governmental organisation represents 2.1 billion people, which is almost one third of the world population.
All but two – Mozambique and Rwanda – were formerly part of the British Empire. By geographical area, the Commonwealth accounts for 21 per cent of the world land area with such large members as Australia and Canada.
In terms of population, it is also diverse. From India with 1.2 billion inhabitants and neighbouring Pakistan with 176m, there is a real contrast to Tuvalu with just 10,000.
The Commonwealth presents an exciting challenge to the investor. Whilst individual shares can be purchased, those quoted on non-UK stock exchanges can incur high dealing costs that may not make them worthwhile. Fortunately, many of the better firms opt for dual listing in London.
There are two other alternatives: to buy the underlying index through an Exchange Traded Fund (but watch whether it actually purchases the component parts or uses derivatives to synthesise its composition) or opt for a fund where a professional manager researches and selects the stocks.
Over the last five years, Australia has been a notably strong performer. Analysis by Lipper specially prepared for the Yorkshire Post reveals top fund growth by:
UBS (Lux) Bond Fund – AUD, up 141.5 per cent
Swisscanto (LU) Bond Invest AUD, up 136.2 per cent
UBS (Lux) Medium Term Bond – AUD, up 133.7 per cent
Aberdeen Global II, Australian dollar bond A2, up 133.6 per cent.
If your preference is more for Canada, Swisscanto’s (LU) Bond Invest for Canada achieved 91.9 per cent in the last five years, followed by Middlefield Canadian Income with 87.7 per cent. In a totally different part of the Commonwealth, the First State Singapore & Malaysia Growth fund secured over 98 per cent growth although other stock pickers – such as Fidelity Singapore and HSBC’s GIF Singapore Equity – were less successful with 65 per cent and 24.7 per cent uplift respectively.
India continues to impress. First State Indian Subcontinent I achieved 94.2 per cent growth in the last five years and Pinebridge Global India Equity A an attractive 84.5 per cent uplift.
Taking a long-term view of 10 years, India was the Commonwealth star with such top funds as:
First State Indian Subcontinent I, up 530.7 per cent
Aberdeen Global Indian Equity Accumulation, up 505.8 per cent
JF India A, up 416.2 per cent.
By comparison, the best performing Australian fund available here – Dexia Equities L Australia C – achieved 253.9 per cent growth, the top Canadian (RBC Global Canadian Acc) 165.5 per cent and the leading Singapore (Fidelity Singapore A) 185.2 per cent uplift.
One New Zealand fund is offered to UK investors: Lloyds TSB Money New Zealand dollars, which shows 178.8 per cent growth in the last decade.
Another way to tap into such markets is to select a fund which splits its holdings between different Commonwealth states. This is where several investment trusts score. By their constitution, unlike unit trusts and open-ended investment companies, they have the ability to borrow, hold back reserves to pay dividends in lean years and boards of independent directors to safeguard the interests of shareholders.
Aberdeen Asian Income has 17 per cent invested in Australia, 20 per cent in Singapore and two per cent in New Zealand. After deducting typical 3.5 per cent charges, according to Morningstar research, growth was 153.8 per cent over three years and 616 per cent over 10 years. Aberdeen’s New Dawn fund has holdings in India (12 per cent) and Sri Lanka (three per cent) as well as Australia and Singapore. It achieved 98.5 per cent and 352.5 per cent uplift on the same basis respectively.
If increasing the Commonwealth holding and opting for commodities and natural resources, 53 per cent is invested by City Natural Resources (Australia 28 per cent and Canada 25 per cent), helping the trust to return 245.7 per cent over three years. Perhaps the highest New Zealand weighting is one-fifth by Utilico Investments which also has 39 per cent invested in Australia.
For a wide spread of Commonwealth countries, look at Advance Frontier Markets. Its holdings include Botswana, Kenya, Mauritius, Nigeria, South Africa and Zambia as well as India and Pakistan. It returned 25 per cent uplift over the last three years.
The top performing investment trusts specialising in India are JP Morgan Indian (up 50.3 per cent over three years and 454 per cent over 10 years) and the more recent New India (up 88.9 per cent over three years). The former was the first such specialist and has attracted £464m. It is tipped by Martin Payne, Leeds director at stockbrokers Brewin Dolphin, who notes it is trading on a nine per cent discount to net asset value and has no borrowing (gearing).
Payne also likes Middlefield Canadian Income, which aims to provide a high level of dividend alongside longer term growth. Launched in 2006, the trust invests in a portfolio of Canadian equity income stocks, currently yielding 4.7 per cent. “Canada is a highly resource-based economy with oil reserves second only to Saudi Arabia and therefore, not surprisingly, oil and energy make up around half the trust’s assets,” says Payne.
The same fund is favoured by Jonathan Baker, investment manager at stockbrokers Charles Stanley in Leeds. He says: “Because of the tax treatment in Canada, many of these companies generate high yields which make them attractive investments for sterling-based investors. Our research team believes the income stream is secure.”
He also likes JP Morgan Indian and the recently issued Jaguar/Land Rover Bond 8.125 per cent until 2018, which is owned by the Indian conglomerate, Tata, the country’s largest steelmaker.