New fund being launched to invest in Iran and other new emerging markets.

News - Funds

Written by Ray Clancy

Tuesday, 31 August 2010 10:09

They are being dubbed the ‘Next 11’ emerging markets and such is the interest in countries like Iran and Nigeria that an investment fund is being launched to capitalise on their potential growth.

Fund firm Castlestone Management said it plans to launch a portfolio investing in emerging markets from the Philippines to Iran, hoping they will show the same rapid growth seen in China and India in recent years.

The Next 11 Emerging Markets fund, set to launch around the start of October, is based on a Goldman Sachs idea of the 11 countries most likely to follow the rapid growth of BRIC countries Brazil, Russia, India and China.

Around 10% of the fund’s assets will be invested in stocks in South Korea, 65% in Mexico, Indonesia, Turkey and the Philippines, some 20 to 25% in Egypt, Vietnam, Pakistan and Nigeria, and 5% in Bangladesh and Iran, the fund’s manager, Arrash Zafari, revealed.

‘It gives investors a second shot at a BRIC like opportunity at a time when you’re not early in getting to the BRIC story anymore. These countries do have the same fundamental drivers such as very large populations that are often still growing and getting richer and whose spending power will be increasingly integrated with the global economy,’ he explained.

The launch comes amid positive returns from some of these ‘Next 11’ markets, even though the MSCI emerging markets index .MSCIEF is down 2% this year.

Iran’s TEPIX index hit a record high this month, while Nigeria’s all share index .NGSEINDEX is up 16% this year despite recent falls.

Zafari said that, despite sanctions from the US, Europe and the United Nations Security Council, Iran presents a ‘jaw dropping opportunity’ with a price/earnings ratio of 6 times and a dividend yield of 15%.

‘Iran is completely overlooked. It’s got many of the attractive secular drivers, such as a large growing middle class who are active consumers,’ he said.

He played down concerns about the power wielded by Mexico’s violent drug cartels, one of the factors that led hedge fund Onslow Capital to short the country’s sovereign bonds. Zafari believes bond market investors need to exercise caution, but sees avenues to avoid the risk in equities.

The new fund will be domiciled in the British Virgin Islands and will have a capacity of around $200 million (£129 million). Castlestone manages around $350 million in assets.