The Wall Street Journal has a lengthy article about how Justin Leverenz, the Oppenheimer Developing Markets Fund (MUTF:ODMAX)’s manager since May 2007, had chosen emerging market stocks he thought would have the potential for long-term growth and how he would hold their shares typically for around five years. However, that emerging market investing strategy didn’t work well in 2015 when his fund lost 14% – beating its benchmark but trailing half of all emerging market funds (according to Morningstar data).
The culprit? Large concentrations of stocks in countries like Russia, Brazil, Colombia and Nigeria where currencies depreciated significantly against the dollar over the past 18 months as commodity prices slid. The fund also held fewer positions in South Korea and Taiwan where currencies have been more resilient.
On the other hand, emerging market stock picks such as Russian food retailer Magnit PAO (MCX:MGNT) and BM&F Bovespa SA (BVMF:BVMF3), a Brazilian exchange operator, were fine.
Leverenz blames the Oppenheimer Developing Markets Fund’s bad performance on what “radical collapse” in the foreign exchange markets: “All of a sudden I found myself owning a bunch of companies in countries that happened to go down a lot in currencies.”
Nevertheless, Leverenz thinks that investors are missing out on growth in China’s health care, eCommerce and education sectors plus he thinks emerging market currencies may be near a bottom as countries improve their trade balances.
As for sentiment towards emerging markets, he commented: “You only need a few positive things to happen to flip the whole situation.”
To read the whole article, Risky Business: Cutting a Path Through Emerging-Markets Turmoil, go to the website of the Wall Street Journal.
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