The $16 billion Sunsuper has allocated an additional $200 million to emerging market equities, but is achieving the exposure through exchange-traded funds (ETFs) selected by its transition manager as it investigates whether the approaches of any active managers “make sense” in the fast-growing markets, according to chief investment officer David Hartley. Combined with its existing allocation to AMP Future Directions’ multi-manager emerging markets vehicle, the $200 million boost would bring the emerging markets component of Sunsuper’s offshore equity exposure to approximately 20 per cent, Hartley said.

The multi-industry fund is not alone in upping its exposure to emerging markets, whose demographic advantages and rapid industrialisation have shone of late in contrast to the ageing and indebted Western world. The $2.5 billion industry fund TWU Super last month approved an increase in the emerging markets portion of its overseas equities portfolio from 15 per cent to 20 per cent. As Sunsuper’s international equities portfolio manager, Joshua Bloom, conducted a search for active emerging market equities managers, the fund would implement its increased exposure through ETFs.

This approach “is working for us for now”, Hartley said, who explained that the transition manager it was using for this deal – Russell Investments – had been instructed to buy “whatever ETFs look best on the day”. Russell is one of a panel of transition managers retained by Sunsuper. Using ETFs was healthy for the fund’s published investment fees, Hartley noted, because they didn’t have to be included in the headline figures. “That really indicates the stupidity of the rules around reporting costs,” he said. The buy/sell spreads on emerging markets ETFs were also lower than those incurred by trading the real underlying shares, he noted. The managers of the AMP Capital Investors Future Directions Emerging Markets Share Fund are Hexam, Investec, Macquarie Capital Investment Management, Charlemagne and Schroders.

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