FIRST TR/ABERDEEN EMERG OPT (FEO)

First Trust/Aberdeen Emerging Opportunity Fund. (FEO) is a close ended fund that invests in a diversified portfolio fixed-income securities (62.4%) and equity (37.6%) in the emerging market countries that includes Latin America, Middle East and Asia to name a few.

The risk profile of the portfolio appears sound as about 15% of the total funds that are allocated to the fixed income securities are invested in highly rated instruments. Brazil and Indonesia are amongst the favorite investment destinations of the fund. As per the estimates of National Confederation of Industries, the outlook for the Brazil looks positive as it’s economy is set to grow at 3.4% fuelled by domestic consumption. Brazilian exports are likely to rise by over 5.5% thereby creating demand for the local currency. Also, Indonesian economy is expected to pick up steam buoyed by lower inflation and continued interest rates cuts after the central bank began eased monetary policy in May 2006.

Moreover, funds’ overseas investments could appreciate because as per the latest world economic outlook by the International Monetary Fund (IMF), the U.S dollar is expected to devalue further against countries like China and oil exporting Middle East nations in order to reduce massive U.S current account deficit.

The fund holds Samsung Electronics as its top equity holdings. Among the few clouds on the horizon is the unexciting outlook for the memory chips market in which Samsung primarily operates, as the prices are likely to cool off in 2007 considering the recent price surge and the cyclicality of the industry. However, taking note of the burgeoning energy needs of China and the Taiwan’s growing semiconductor industry albeit slower than 2006, other scrips in the portfolio like PetroChina and Taiwan Semiconductor Manufacturing could fare well. Though the expense ratio of the company is quite high, fund is pretty diversified which would minimize the risk appetite. Summarizing these facts, FEO is expected to deliver decent returns in the coming one year.