Poor performance over the past three years has seen investor sentiment towards the developing world cool. Some analysts have even started to suggest that it could be time to buy in anticipation of a rebound on valuation grounds.
However, Edelsten says that his preferred metrics suggest that emerging markets are still expensive compared with their developed counterparts, especially so for developed world companies that sell into the developing world.
"In emerging markets you need stocks at the right price: they are more expensive than the proxies you hold in Europe," he said.
"Direct investment is relatively expensive on normal measures. We have taken profits in direct investment and hold stock in the parent companies in Europe on much more modest ratings."
"We take a better view of these stocks than a European manager, who might want to play the domestic economy. We compare everything globally because we are comparing emerging markets with developed markets."
Edelsten suggests that one of the reasons the stocks look cheap on an index level is the unbalanced nature of those indices.
"The trouble at a collective level is the drivers of the stocks: you have a group of stocks like Russian oil companies, mining companies and so on which typically trade on low P/E [price/earnings] ratios and if you look at the whole of emerging markets, they are full of banks, miners and so on. But it’s the consumer staples that show you they are expensive," he said.
Edelsten and co-managers Alex Illingworth and Rosanna Burcheri look at valuations in a different way from many managers, another reason why their conclusions differ from those of analysts who have recently appeared on FE Trustnet.
Rather than looking forward, predicting future cash-flows and discounting them to a present value, the managers look at actual historic data to build their models, using the enterprise value to free cash-flow metric.
"We try to break down how much cash companies have generated free from obligations in previous historic years and compare that to the share price," Edelsten continued.
"That suggests how much growth the market is expecting. You can do it so it’s pretty consistent around the world. We have taken a lot of profits in emerging markets. Emerging markets are still really quite worrying."
The key reason is the strength of the dollar, which is hurting countries that have borrowed in this currency.
"As the summer has gone on we have seen new a phenomenon emerge: the currency markets are taking it as very bad for specific emerging markets, but only some – not the ones we have been investing in."
Edelsten says that again, contrary to received wisdom, one of the best emerging markets to be in right now is China, largely thanks to this currency issue.
"We would argue that China is in a very different situation entirely. This is a country whose central bank holds $3.5bn Treasury bills, so when rates go up they benefit."
Edelsten says that he has been adding to Chinese stocks such as Hutchinson, which is managing to make share price gains even as the overall market fails.
He says he prefers to buy the state-owned companies that are backed by the government rather than the private companies preferred by many investors who see them as lower-risk.
Edelsten says that while there is a lot of negativity around growth in China, what is truly astounding is how consistent its figures are.
"If you look at GDP figures in China, you need to be quite candid about how stable it has actually been."
"The papers have gone for China lately, they say they are massaging the figures, but none of them – GDP or banking results – support the idea there’s a problem.”
Artemis Global Select is a £35.9m fund that takes the MSCI AC World Index as its benchmark.
Data from FE Analytics shows that the fund has made 25.54 per cent since launch in June 2011, compared with 23.22 per cent from the benchmark and 19.2 per cent from the average fund in the sector.
Performance of fund since launch vs sector and benchmark
Source: FE Analytics
Although the fund has 12.1 per cent in Asia ex-Japan, its biggest recent bets have been on Japan and the US.
The fund has 41.7 per cent in the US, a weighting Edelsten says will remain high.
The manager rejects concerns that a looming debt ceiling negotiation could lead to a pull-back for the market, as suggested by Gary Potter in a recent FE Trustnet article.
"I cannot remember how many times I have heard this over the last few years," Edelsten said. "There were people saying that in the spring. However, some of the sequesters haven’t kicked in yet, so one has to keep an eye on it."
He says that valuations are a concern, but only in certain areas of the market.
"Some of the other stocks have gone up faster than earnings, so we are taking profits in some stocks, but it’s such a big deep market that there are other stocks coming in that are better value for money," he said.
"We have got by in America by ducking and weaving, as most of our money is in weird themes such as stuff that only old people buy. We haven’t been in most of the mainstream sectors."
Retiree spending power is one of the major themes in the fund, along with the growth in the emerging market consumer-base, energy in a gas glut and new media content.
He also retains his positive view on Japan and is increasing his weighting to the country, which currently makes up 15.8 per cent of the fund.
"We have been buying more stocks in the last few days: we think it will be a multi-year story," he said.
"After six months people are saying why haven’t they changed everything yet?"
"Never expect things to happen overnight in Japan. It’s a big and conservative country."
As for Europe, Edelsten warns that in the medium-term, even a low level of growth will do little for the continent, as the cost of social spending continues to rise dramatically, not helped by an aging population.
"It’s very similar to last summer when markets got quiet and people went to the beach and they said 'perhaps Europe won’t be so bad'."
"We have added one or two stocks but we are still underweight. People are saying we might get positive GDP numbers from Europe this year, but nobody is producing large growth or recovery."
Artemis Global Select has ongoing charges of 1.87 per cent and requires a minimum initial investment of £1,000.
