The FMG (EU) Combo Fund finished the year with a strong fourth quarter with a gain of +3.4% and completed its best year ever with a +18% gain. Strong demand for global and emerging market equities helped generate the record year.
Emerging Markets accounted for 51% of the portfolio at year-end, with the main exposure to China. The EM exposure included India, Russia, select Middle East countries, Latin America and Africa.
Equities are currently enjoying a benign environment with low global inflation, historically low-interest rates, very favourable prices on commodities and, given high real estate prices in both EM and DM, equities remain the favourite asset class.
Emerging market equities have an estimated P/E of 13.3 compared to 17.4 for the main world benchmark, the MSCI World Index. Comparing the price/book ratio puts EM at 1.9 vs 2.6 for the world and earnings growth of 8% for EM vs 6% DM.
The outlook of a favourable tax reform in the US bodes well for equities going forward. Expectations for further interest tightening in both the US and now also in Europe has already been discounted. We firmly believe that we are only at the beginning of an upward bull market trajectory.