Make the Commonwealth your empire when building a portfolio

0
Have your say

Commonwealth Day is celebrated this coming Monday. The 54 states which form the Commonwealth offer a panoply of investment opportunities from mature economies rich in minerals like Australia and Canada to under-developed nations with a low-cost base.

The term ‘Commonwealth’ was first used in 1884 by Lord Rosebery before he became Prime Minister and its objectives outlined in Singapore in 1971. It developed out of the British Empire to which all the members, except Mozambique and Rwanda, belonged.

Today it embraces 2.1 billion people – almost one third of the world’s population – across six continents.

Whilst there are no investment funds which are Commonwealth-specific, there are various ways into this alliance of states who share common values. Purchasing on overseas stock exchanges is expensive in dealing expenses. Instead opt either for a managed collective or an index fund.

Looking at the three key countries of Australia, Canada and India for mutual funds over three years, research by Lipper specially prepared for the Yorkshire Post shows:

• Fidelity Australia A (in Australian $), up 43.8 per cent;

• First State Indian Subcontinent A, up 42.1 per cent;

• Maple-Brown Abbott Australian Equity, up 37.8 per cent;

• Aberdeen Global Indian Equity, up 31.4 per cent;

• New India Investment Trust, up 22.6 per cent;

• UBS (Lux) Equity Fund Canada, up 17.5 per cent.

The aptly named British Empire Securities & General Investment Trust alludes to a colonial past but today is a global equity fund managed by Asset Value Investors. It offers relatively high exposure (17 per cent) to Canada. Its asset mix includes property (7.7 per cent) and resources and mining (7.9 per cent).

In view of the strong resources in Canada, with oil reserves second only to Saudi Arabia, consider Canadian General Investment, which is London listed and invests in Canadian stocks. It has been managed by Michael Smedley of Morgan Meighen & Associates for over two decades.

Overall, the Canadian economy continues to perform well. Corporate balance sheets are strong, profit margins robust and equity valuations attractive. A G8 member, Canada has the world’s strongest banking sector according to the World Economic Forum.

Middlefield Canadian Income is favoured by Jonathan Baker of stockbrokers Charles Stanley in Leeds. The fund invests primarily in Canadian listed equities and income trusts, aiming for a high level of dividends as well as capital growth. The energy and financial sectors have largely contributed to the recent strong performance.

If looking for fixed interest, Baker singles out Australian and short-dated Canadian as two appealing Commonwealth Government sources. The first he held until the currency started to move against sterling but the latter is still an investment.

In southern Africa, there are several openings. Jason Hollands of private client advisers Bestinvest singles out three: BlackStar, which invests in black economic empowerment, AIM-listed Africa Opportunity fund which has 19 per cent in Zambia, 15 per cent South Africa and five per cent Zimbabwe, and PME African Infrastructure Opportunities which invests in property in Tanzania, rail in South Africa and telecommunications in Tanzania and Uganda.

BlackStar has “a credible management team” and trades on a discount of almost 30 per cent, making it “an attractive way of playing growth in the South African and wider African economies”, say private client stockbrokers Killik.

Other openings to consider are JP Morgan’s Africa Equity (up 60 per cent since launch in May 2008), Fidelity EMEA (two-thirds in Africa and up 42 per cent in five years) and Templeton Africa.

India is one of the more accessible Commonwealth countries for investors. Whilst funds specialising in the country can be volatile, this is an ideal way to benefit long term, such as investing for a child. Instead of trying to guess the exact time to invest, drip-feed in monthly.

In the short term, India faces many challenges from political gridlock, creaking infrastructure (the northern power grid collapsed last year) and corruption. Its currency can add volatility as the rupee is not pegged to the US dollar.

The country has “the potential to become an economic global leader”, says Andy Parsons, head of investment research at The Share Centre. This view may be behind David Cameron’s visit last month. Parsons tips Jupiter India, which launched in February 2008, and is almost 60 per cent invested in financials and consumer goods with the accent on growth.

Leading open-ended funds to consider are Aberdeen Global Indian Equity, First State Indian Subcontinent and Franklin India but a closed-ended one (with the ability to borrow and with independent directors) is JP Morgan Indian.

Do not overlook other Asian Commonwealth countries. Aberdeen Global Asian Smaller Companies has exposure to Malaysia (20.3 per cent), Singapore (16.9 per cent), India (6.8 per cent), Australia (4.1 per cent) and Sri Lanka (2.9 per cent).

New Zealand is rather more difficult to access but Utilico is an investment trust with 19 per cent exposure there. It specialises in utility firms like New Zealand Oil & Gas. Australia – along with Canada and South Africa – are of course rich in an abundance of natural resources, ranging from diamonds and gold to oil but also key, although less exciting, like iron ore, where Australia is the world’s largest exporter.

Funds like First State Asia Pacific Leaders (which favours mid and large cap companies for long term holding) and Aberdeen Asia Pacific not only provide specific exposure to Australia but also to such countries as India, Malaysia and Singapore.

BHP Billiton is the world’s largest diversified mining company with a dual listing in London and Australia. Based in Melbourne, it has mining operations in several Commonwealth states including Canada, Pakistan and South Africa.

Another way to access Commonwealth markets is through an index which mirrors the constituent parts of leading listed companies. Check the physical stock is held rather than using derivatives to synthesise the conditions.

Leading exchange traded funds for such indices, prepared by Lipper over three years show:

n Db x-trackers S&P/ASX 200 (for Australia), up 42.8 per cent;

n iShares MSCI Australia (in US$), up 40.3 per cent;

n Credit Suisse ETF MSCI Canada, up 26.7 per cent;

n db x-trackers S&P CNX Nifty (for India), up 9.1 per cent.

One attractive approach is to invest in iShares CASSH exchange traded fund, according to Payne. By combining several indices, the investor can gain exposure to smaller developed markets which are less burdened by debt.

Back to the top of the page