Back these Brits and make gains abroad

By JEFF PRESTRIDGE, MONEY EDITOR AT LARGE
Updated: 18:24 EST, 14 August 2010

Investors don't have to invest in an emerging markets fund - see main report, right - to benefit from the world's growth economies. They can also get exposure by investing in leading British companies that do much of their business in the burgeoning markets of Asia and Russia.

About 70 per cent of the earnings generated by the FTSE 100 biggest companies on the London Stock Exchange come from abroad. For many companies, strong overseas business has helped bolster overall earnings, crucial at a time when the British economy has faced big challenges.

Only last week, embattled Prudential boss Tidjane Thiam said Asia remained the region with the best potential for delivering the company profitable growth.

Outstanding success: Ed Legget of Standard Life has delivered 33 per cent returns over the past year

Some of the big overseas earners are obvious, such as mining giants Rio Tinto and BHP Billiton. But others are less so, such as household goods giant Unilever, and engineering firm Rolls-Royce, whose sales are now primarily overseas. Soap manufacturer PZ Cussons generates half of its profits from Africa and Asia.

Many of the country's top fund managers have skewed their portfolios towards large companies with exposure to emerging markets. Tim Steer, for example, built his investment reputation at New Star before joining rival Artemis last summer.

For the past 13 months, he has run the £292million Artemis UK Growth fund. With a oneyear return of 18 per cent, it has outperformed the FTSE All-Share Index's 16 per cent. Among his fund's top ten portfolios are BHP Billiton, Rio Tinto, international bank Standard Chartered and engineering firm Weir Group - all have significant business interests in emerging markets.

Thomas Ewing, the Fidelity UK Growth fund manager, has also ensured that his portfolio has emerging markets exposure through its big holdings in Rio Tinto and drinks giant Diageo.

Financial Mail asked Ed Legget, investment manager of the Standard Life UK Equity Unconstrained fund, to put together a balanced portfolio of British companies with exposure to emerging markets.

Top performers

Legget has had outstanding success at the helm of the £178 million UK Equity Unconstrained fund since taking over in April 2008. Over the past year, he has delivered investors with returns of 33 per cent. Among his top ten holdings is international mining company Vedanta Resources.

Legget identified companies that generate more than 35 per cent of their sales overseas from among the top 350 shares listed on the London Stock Exchange. Within each market sector, he selected those with the highest international sales.

Legget's British 'emerging markets' portfolio, see above, is light on retail, property and life insurance firms.

If this portfolio had run for the past five years, with holdings reweighted back at the end of each year to five per cent, Legget says investors would have enjoyed a return, before fees, of nearly 200 per cent.