This time last year, it looked like Goldman Sachs Group Inc.’s selection of emerging market up-and-comers was ready to fill the void left by shrinking investment returns in Brazil, Russia, India and China.
Share prices in these “Next 11” countries — places like the Philippines, Turkey and Mexico — were trading at all-timehighs as foreign investors flooded their markets with cash. Inflows into Goldman Sachs’s U.S.-domiciledNext 11 equity fund sent assets under management to twice the level of the firm’sBRICs counterpart.
Now, though, the Next 11 countries are looking even worse for investors than the larger markets they were supposed to supplant. MSCI Inc.’s Next 11 equitygauge has tumbled 19 percent this year, versus a 14 percent slump for the BRIC index. Foreign capital is rushing out, with the Goldman Sachs fund shrinking by almost half as losses deepened to 11 percent since its inception four years ago.
The turnaround shows how young populations and a rising middle class — characteristics that first lured Goldman Sachs to the Next 11 economies a decade ago — have failed to safeguardstock-market returns in a world facing higher U.S. interest rates, tumbling commodity prices and a Chinese economic slowdown. ForJohn-Paul Smith, one of the few strategists to accurately predict the losses in emerging markets, it also illustrates the dangers of grouping so many disparate countries into a single investment theme.
Money managers “are increasingly moving away from acronym-based investment,” said Smith, the former Deutsche Bank AG strategist who founded Ecstrat, a London-based research firm, last year. “Within emerging markets, it is difficult to think of a market that has a combination of attractive valuations and constructive policy developments.”
Katie Koch, a managing director at Goldman Sachs Asset Management, said that even with this year’s decline, the Next 11 fund’s return since its 2011 start still beat theMSCI