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Move over BRICS...Philippines, Anyone?
03/27/2013 7:45 am EST
The Philippines may replace the BRICS and join the short list of the hottest new areas to invest, says Ari Charney of Investing Daily.
Over the past year, I've interviewed several portfolio managers who helm some of the top-performing international and emerging-market funds.
And when the conversation eventually diverges from the usual BRIC (Brazil, Russia, India, and China) names, one of the more intriguing countries on their radar is the Philippines.
Despite having the highest unemployment rate (recently 7.1%) among its peers in the Pacific Rim, the Philippine economy grew at a torrid 6.8% last year, thanks in part to significant remittances from the country's expatriates. In January, that amounted to $1.7 billion in January, or 10% of Philippine gross domestic product.
With consumer spending contributing as much as 75% of GDP, remittances are a key component of the country's consumer-driven economy. January remittances were up 8% year over year, the third fastest rate in the past 12 months.
The Philippine Stock Exchange Index (PSEI) is up 27.5% over the trailing year, and the index has gained 17.6% annually over the past three years. Even with such heady gains, there are likely still opportunities for aggressive investors interested in this frontier market.
With that in mind, I screened for the top-performing mutual funds focused on international and emerging markets, narrowing the results to funds that specialize in the Asia-Pacific region or small- and mid-cap stocks.
I looked for mutual funds that beat the MSCI EAFE and the MSCI Pacific indexes over the trailing one-year, three-year, five-year and ten-year time periods. I also limited my search to funds whose management teams have been at the helm for at least five years.
Of course, these criteria exclude a number of emerging market funds that were launched in the past five to eight years to capitalize on the outperformance of these markets, so it may be worth searching these newer funds for ideas in the future.
Among the dozen or so funds that fulfilled my criteria, the following six funds had at least one or more holdings domiciled in the Philippines. Since data for portfolio holdings is reported on a lag, I've also included the data cut-off for each portfolio in parentheses, so you can take that into consideration:
- Artisan International Small Cap (ARTJX) (12.31.12)
- Fidelity Pacific Basin (FPBFX) (1.31.13)
- Invesco Asia Pacific Growth (ASIAX) (12.31.12)
- MFS International New Discovery (MIDAX) (1.31.13)
- T. Rowe Price International Discovery (PRIDX) (12.31.12)
- Wasatch International Growth (WAIGX) (12.31.12)
All the funds are open to new investors, except for ARTJX. Four are no-load funds, while ASIAX and MIDAX have sales charges of 5.5% and 5.75%, respectively. Most of these funds are generalists, so their exposure to the country is limited to just one or two names.
Stocks in the funds which were either new positions or stocks whose holdings were boosted significantly include:
- Megaworld (Philippines: MEG)
- Globe Telecom (Philippines: GLO)
- International Container Terminal Services (Philippines: ICT)
If you're leery of wading into the Philippine stock market or holding individual names, you can always invest in the iShares MSCI Philippines ETF (EPHE), containing stocks with an average market cap of $5.7 billion.
The ETF actually outperformed the Philippine stock market last year, gaining almost 48% vs. nearly 33% for the PSEI. However, it should be noted that its highly concentrated portfolio holds about 60% of assets in just ten stocks. The ETF charges a reasonable 0.61% annual expense ratio.
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