The FMG Rising 6 Fund, a globally broad-based EM Fund, had a very good final quarter in 2016, up 3.9% compared to an MSCI EM index loss of 4.6%. EM had the best year since 2012 as finally investors started looking once again as the attractiveness of valuations versus Developed Market stocks.
Over the last 5 years the Fund is up 6% versus the MSCI EM index, which was down 6% for the same period.
The big stars of 2016 were Brazil and Russia, which finally bounced back after selling off considerably in the past 3 years. We were able to catch much of the upside as we allocated 20% into each of the regions in the 1st quarter of 2016.
The laggards were China A, Middle East and Africa. China A was down 25% in January and never recovered much, ending the year down 18%. For the remainder of the year the market whipsawed in a tight range, which meant that we never really felt the need to add to our average allocation of 12%. Africa continued disappointing with large devaluations in the 2 biggies – Nigeria and Egypt.
So what should one expect for 2017? As fund flows continue rotating out of bond funds into equity funds, with a special focus to EM, our bullish stance is finally reaping its rewards. We have long been harping about the cheapness in EM – we are now at those crossroads were we would expect a continued, sustainable long-term bull run in EM equities.