Federated Makes Case For Emerging Markets
May 23, 2011
Investors can't seem to get enough information on emerging markets and the funds that invest in them at Federated Investors.
Given the case that Federated makes for investing in emerging markets, it's understandable why.
The Pittsburgh, Pa.-based asset manager contends emerging markets are poised to continue delivering strong performance due to their growing economies, burgeoning middle classes and expanding utility, transportation and business infrastructure.
Federated, which counts more than $400 billion under management, lays out these reasons in one of its most popular white papers, "The Maturing of the Emerging Markets."
As with all of Federated's mutual fund marketing efforts for the past two years, the investment manager make the case for this and other investment opportunities by initially providing financial advisers with product-agnostic white papers that-if the financial adviser expresses interest-can be augmented with product fact sheets. The "Invest Without Boundaries" fact sheet, for instance, describes the investment processes of three Federated international funds.
The key, said J.T. Tuskan, senior vice president and director of marketing and corporate communications at Federated, is that the "weekly commentaries from the firm's investment strategists are not product-specific but sector- and market-specific. We consider this to be high-value content that our internal sales desk and external wholesalers can use to have meaningful discussions with current financial intermediary clients and prospects about different investment concepts" by drawing on the points in the commentaries.
The financial intermediary can then use this intellectual capital in their dealings with their investors, Tuskan said.
"It is then up to our internal and external sales organization to turn those interactions with the intermediaries into sales," he said.
Each week, Federated sends out its white papers and market commentaries to 35,000 financial intermediaries who have signed up either through Federated's website or sales desk to receive these materials.
In addition, as calls come into Federated's internal sales desk, the firm provides these white papers to more than 100,000 financial adviser clients and prospects throughout the year.
Through the end of April, Federated this year has provided 30,000 copies of its "Maturing of the Emerging Markets" paper to financial advisers.
Federated recently augmented its marketing of this white paper with an e-mail blast to the readers of Bank Investment Consultant, which, like Money Management Executive, is a SourceMedia publication.
When intermediaries or investors follow up with inquiries about emerging markets opportunities, Federated's internal sales desk and wholesalers then provide them with the mutual fund fact sheet "Invest Without Boundaries" that highlights three of its international funds with emerging markets exposure: the Federated InterContinental Fund, the Federated International Leaders Fund and the Federated International Small-Mid Company Fund. Federated has a separate fact sheet for the Federated Emerging Markets Debt Fund called "Participation in Dynamic Emerging Markets."
Each of these funds has delivered strong returns, performance data on Federated's website shows.
The Emerging Markets Debt Fund rose 7.32% in the 12 months ended March 31, 2011, and 10.95% in the trailing 10 years ended on that date. The InterContinental Fund rose 17.98% in the past year and 8.38% in the past 10 years.
Currently, Federated's international funds hold $4.5 billion in assets under management, just 6% of its $74 billion in fluctuating assets, Tuskan said, but judging from this year's reaction to its emerging markets marketing push, Federated expects that to increase. In fact, two of Federated's five best-selling equity funds this year are the InterContinental Fund and the International Leaders Fund.
"Investment gurus expect investment opportunities in emerging markets to be quite strong on a long-term basis," Tuskan said, adding that Federated is considering launching an advertising campaign around its international funds.
Certainly, Federated's white paper on emerging markets makes a compelling argument for investing in the category, calling the financial crisis of 2008 a definitive turning point in the fate of developing nations.
The report includes many quantitative details to prove the reversal of fortune for developed and developing nations-not least of which is the fact that emerging market consumers last year outspent their U.S. counterparts for the first time.
Citing data from J.P. Morgan, the Federated report notes that consumption in developing nations rose by 6.5% in 2010, compared to a scant 1% in developed nations, "pushing emerging markets' share of global consumption to 34% versus just 27% for U.S. consumers." In 1990, developed nations accounted for 29% of global consumption, and developing nations 23%.
And in terms of GDP growth, developing nations are going to blow developed nations away in the years ahead by growing at least three times faster, Federated says. The IMF expects the output of emerging countries to expand by 6.4% in 2011 and by 6.7% in 2015-whereas advanced economies will expand by 2.2% in 2011 and by 2.4% in 2015, Federated points out.
Coupled with this growing wealth in developing nations is another major factor, Federated points out: population growth.
The middle class in emerging nations is expected to grow by two billion people by 2030, and in the next decade, the population growth rate in the world's less-developed regions is projected to be five times the rate of population growth rates in developed nations.
The pain that developed nations underwent in the financial crisis will continue for years to come, as they struggle to de-leverage debt that will only continue to snowball, Federated says in its report. The IMF projects government debt as a percentage of gross domestic product for advanced G-7 countries to surpass 114% this year and exceed 122% of GDP by 2015. By contrast, public debt in emerging G-20 countries is expected to decline from 36% this year to 32% in 2015.
"While we at Federated have always counseled investors to maintain a diversified portfolio that includes international holdings, the case has never been more compelling," the white paper says. Tuskan added, "We have some very good international products that have been one of the quiet strengths of our firm. We could be more aggressive in promoting them, and I expect we will."