Gervais believes these 11 nations make good proxies for growth in Africa, Asia and the Middle East
To take advantage of opportunities in the world’s fastest-developing economies, investors need to start looking beyond the obvious emerging markets toward the next stage of growth.
According to Don Gervais, global head of fundamental-equity product management at Goldman Sachs Asset Management, that means investing in countries such as Indonesia, Turkey, Vietnam and Pakistan.
“There’s a 40-year story that considers some of the other economies that will have an impact on the global economic landscape,” Mr. Gervais said.
Specifically, he is referring to what Goldman Sachs has dubbed the “Next 11,” which takes a step beyond the popular BRIC emerging markets of Brazil, Russia, India and China.
By Goldman’s analysis, the next 11 countries to watch are Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam.
In making the case for the recently launched Goldman Sachs N-11 Equity Fund (GSYAX), Mr. Gervais said the Next 11 countries “have the potential over the next 40 or 50 years to rival the G-7 nations in terms of economic importance.”
The fund, which was launched Feb. 28, is designed to tap into the potential of the large and young populations that combine to represent 1.3 billion, which is 19% of the word’s population, or roughly the size of China.
“We’re seeing increased levels of wealth taking hold,” Mr. Gervais said. “There are strong and improving economic conditions, and an opportunity for continued domestic consumption in those countries.”
While the Next 11 category takes investors further out on the risk plank, Mr. Gervais compared the opportunity to that of the BRIC economies when the concept was first developed in 2001.
“Geopolitical risk is definitely a factor, and that will be part of the volatility we see,” he said.
The fund is designed with flexibility in mind, which Mr. Gervais said should help investors navigate through some of the most extreme market conditions as they unfold.
The fund is currently most heavily weighted in Mexico, Indonesia, South Korea and Turkey.
Current economic sanctions prohibit the fund from investing in Iran, but it will remain as part of the Next 11, Mr. Gervais said.
For investors ready to make the leap, the fund offers broad international diversity, with exposure to Africa, the Middle East and Asia.
Even within the list of 11 countries, there is a range of emerging economies.
Mexico and South Korea, for example, are considered the most developed of the group, and each represents about 1.6% of the world’s gross domestic product.
The next-largest economies are Turkey and Indonesia, which respectively represent 1.2% and 1.1% of global GDP.
On the other end of the spectrum, Bangladesh, Egypt and Nigeria represent pure examples of frontier markets.
According to Mr. Gervais, combining the BRIC nations with the Next 11 would give investors exposure to the world’s strongest emerging markets.
“Of the 150 non-developed markets, these 15 really make the difference as the most attractive investment opportunities,” he said.
The fund will use individual securities and exchange-traded funds, and will invest in local markets when and where that is possible.
“When you look at the transformation that is taking shape around the world, we think the Next 11 is another concept that has relevance for investors,” Mr. Gervais said.
Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.
Original at: http://www.investmentnews.com/article/20110314/FREE/110319972