Big Bets for the Brave Investor

Gold, Turkey and Indonesia have been the worst performing sectors so far this year. Do you dare to dabble in a bit of contrarian investing?

Emma Wall 13 November, 2013 | 11:30AM
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Are you the type of person who will bet on a horse that is 200/1 on the outside chance you could change £5 into £1,000? If you can afford to stomach the bumpy ride contrarian investing could be for you.

Contrarian investing - sometimes called bottom feeding - goes against the flow of the market, selecting the assets that others have cast aside. 

Contenders this year are those sectors that managed to haemorrhage cash at an alarming rate. Gold, mining and frontier markets have lost between 45% and 15% this year on average, while UK smaller companies have grown 40% and the biotech sector has stomped home with a massive 57%.

Metals and mining have had several bad years. Evy Hambro, manager of the BlackRock Gold & General fund had a fantastic run up until the end of 2010, then a tumultuous 2011, and since then really it's been down with 40% losses so far this year.

But Hambro remains confident that the sector is due a readjustment. 

"We've seen a deterioration in the gold price which has affected performance. But the main thing that has been so frustrating for us as investors predominantly in gold equities has been the way in which the companies have been run," he said

"The light at end of the tunnel is the actions that are now being taken should deliver or release the value that's inherent in the companies. We're starting to see that come through, but it's still very early days in terms of people believing that the leopards are going to change their spots."

In August, seven best performing funds across all investment sectors last month all invested in gold.  Smith & Williamson Global Gold & Resources gained 20%, Charteris Gold increased 25% and popular choice BlackRock Gold & General, run by Evy Hambro, gained 19%.

But this was short-lived, and the last two months have been sticky. 

Morningstar analysts have retained BlackRock Gold & General's Gold rating however, suggesting that, in time, the fund will return to form. Other rated funds include Investec Global Gold, rated Bronze. Highly rated investment trusts include the Gold-rated BlackRock World Mining (BRWM), also run by Hambro.  

Also among the worst performers so far this year are Turkey and Indonesia. The MSCI Turkey index has fallen 18% in 2013 and the MSCI Indonesia Index has lost 16%.

Turkey's downturn has been blamed on the social uprising. Last month, emerging markets guru Mark Mobius, executive chairman of the Templeton Emerging Markets Group said political and civil unrest were not barriers to entry for investment.

In an exclusive interview with Morningstar.co.uk, Mobius said unless governments restricted access to markets, he would always invest in countries which offered opportunities regardless of social turmoil. 

Turkey's fundamentals are in fact very attractive to investors. Turkey has the youngest population in Europe, with half the population aged 30 or less. This means that both the state and households have fewer elderly dependants – a burden that holds back economies such as Japan.

Jim O'Neill, the former Goldman Sachs investment chief who coined the term Bric in 2001, two years ago tipped the "N-11", a term for the next 11 economies that he believed would drive global growth.

The N-11 are Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.

Country specific investment can be risky, so try choosing a highly rated emerging markets or frontier markets fund where the manager has the freedom to stock select from countries such as Indonesia and Turkey.

Mobius' own Templeton Frontier Markets fund is up 14% this year and has a 8% exposure to Emerging Europe. 

Baring Emerging Europe (BEE) is Bronze rated, and has 15% invested in the Turkish stock market. The trust is up 17% over the past year.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barings Emerging EMEA Opportunities Ord756.01 GBP0.27Rating
BlackRock Gold and General A Acc1,136.38 GBP-3.37Rating
BlackRock World Mining Trust Ord644.00 GBP-0.15Rating
Ninety One Global Gold A Acc £167.26 GBP-4.27Rating
Templeton Frontier Markets A(acc)USD21.93 USD0.88Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar