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The fund aims to benefit from the growth of emerging markets through the infrastructure sector and selected currencies. The fund will provide exposure to the infrastructure sector mainly through the S&P Emerging Markets Infrastructure Total Return Index. Extra potential returns will be sought from a basket of emerging market currencies, in a bid to capture potential currency appreciation and positive interest rates differentials against the US dollar.
The infrastructure sector, which has experienced robust expansion in recent years following a strong growth in emerging markets worldwide, remains among the main drivers of growth. The need for the continued development of land and air transport, increased electricity generation capacity as well as oil exploration in emerging markets, are expected to drive this growth forward.
The S&P index tracks the performance of the stocks of the largest 30 listed infrastructure companies in developing Asia, Eastern Europe, the Middle East and Latin America and covers utilities, transportation and energy.
China makes up the bulk of the index with a weighting of 34.80%, followed by Brazil (14.11%), Argentina (13.25%), Russia (11.66%), the Czech Republic (10.29%), and other markets. Utilities account for 42% of the portfolioÆs sector breakdown, while transport and energy make up 34% and 25%, respectively.
To qualify for inclusion in the index, the companies must be incorporated in an emerging market or with a majority of the companyÆs revenue derived from emerging markets operation. Their market capitalisation must be more than $300 million with a three-month average daily trading value exceeding $1 million.
The fund makes use of an alpha generator that aims to capture the potential currency appreciation and positive interest rate differentials. The basket is expected to include the US dollar and between one and three emerging market currencies selected to maximise interest rate returns combined with potentially lower downside risks. As of May 2008, the proposed currencies basket was made up of the Argentine peso, the South African rand, the New Turkish lira and the US dollar in equal proportions.
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