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Castlestone fund to target new “BRIC” countries

Big holdings Mexico, Indonesia, Turkey, Philippines, Korea.

August 27, 2010 10:56 by

Fund firm Castlestone Management 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 percent of the fund’s assets will be invested in stocks in South Korea; 65 percent in Mexico, Indonesia, Turkey and the Philippines; 20 to 25 percent in Egypt, Vietnam, Pakistan and Nigeria; and 5 percent in Bangladesh and Iran, the fund’s manager, Arrash Zafari, told Reuters.

“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,” he said in an interview on Thursday.

“They do have the same fundamental drivers — very large populations that are often still growing and getting richer and whose spending power will be increasingly integrated with the global economy.” The launch comes amid positive returns from some of these ‘Next-11′ markets, even though the MSCI emerging markets index is down 2 percent this year.

Iran’s TEPIX index hit a record high this month, while Nigeria’s all-share index is up 16 percent this year despite recent falls. Zafari said that, despite sanctions from the United States, Europe and the United Nations Security Council, Iran presented a “jaw-dropping opportunity” with a price/earnings ratio of 6 times and a dividend yield of 15 percent.

“(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 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. He picks Mexican cable TV company Megacable as operating in an area where the cartels have not encroached.

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

(By Laurence Fletcher, Editing by Michael Shields)

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