Ricketts, who heads up a number of funds of funds at Margetts, says that the negative sentiment towards the developing world has "washed out" all emerging markets stocks, even very good companies that can deliver on a long-term basis. Because of that, the manager says he has been buying during the dip as he feels this will lead to outperformance in the long-run.
"We have started to see a bit of outperformance recently, but for every bump emerging markets have faced, we have been adding to our exposure," Ricketts explained.
"If managers like something for the long-term and they are getting cheaper, then that is the time to buy. That’s what all the good fund managers have done in the past and though it may mean they briefly underperform, it is what creates their strong long-term track record," he added.
Emerging market equities have struggled compared with their developed peers recently.
According to FE Analytics, the S&P 500 and the FTSE All Share have both returned more than 30 per cent over three years; however the MSCI Asia Pacific ex Japan index has returned 10 per cent and the MSCI Emerging Markets index has actually seen losses.
Performance of indices over 3yrs
Source: FE Analytics
Ricketts says that on an index level, the developed world markets could continue to outperform. However, he says the index has little bearing on his decision as he fully expects active emerging market managers to be the driver of his returns over the coming years.
"It’s like Europe after the credit crisis. All European stocks were washed out, even the top-quality companies, which meant stockpickers flourished," he said.
"Emerging markets are the same now. Sentiment has pushed all markets down and because of that sell-off there are now a lot of great companies that are trading at a great value."
"I wouldn’t be able to tell you if the MSCI Emerging Markets index will beat the S&P 500 over the next few years, it wouldn’t surprise me if it didn’t to be honest. However, one thing you can say about the good active emerging markets managers is that they consistently outperform their benchmarks."
"That is why the tracker argument absolutely doesn’t work for emerging markets."
"Emerging market stocks are not heavily over-researched and that means good analysis on the ground can unlock very high returns," he added.
One of Ricketts’ portfolios, the £79m Margetts Venture Strategy fund, has a 64 per cent weighting to Asia Pacific and emerging markets. He says he has kept a consistently high exposure to the developing world for the past 10 years or so.
In his top 10-holdings, for example, he owns First State Global Emerging Markets Leaders, Aberdeen Emerging Markets, Aberdeen Asia Pacific, UBS Emerging Markets Equity Income, Schroder Asian Income, Newton Asian Income and First State Asia Pacific Leaders.
The manager says he has been buying more of these funds, and also Somerset Emerging Markets Dividend Growth.
The £331m Somerset fund is a relative newcomer to the scene, having achieved a three-year track record this year. It has won five FE Crowns.
The £111.2m UBS Emerging Markets Income fund was only launched in January 2011 and is therefore too young to receive a rating. It is currently yielding 4.8 per cent.
Ricketts’ emerging markets exposure has led to his fund’s recent underperformance, as Margetts Venture Strategy sits in the third quartile of the IMA Flexible Investment sector over one and three years.
However, the fund is the second-best performing fund in the sector over 10 years, with returns of 169.54 per cent, beating the average portfolio by more than 75 percentage points. It also boasts top-quartile returns over five years.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Ricketts understands why some investors are wary about buying emerging markets, given certain macro-economic headwinds, but he says sentiment has probably turned too negative now.
"There has been quite a lot of pessimism lately, but when there is pessimism, that signals you should be buying," he said.
"We are more comfortable about the slowdown in China than the majority of the market as we feel the Chinese authorities are dealing with the problem. We also like the way they are controlling the huge reserves they sit on."
"GDP figures have surprised in China on the upside as well. We think there is also more room for upside surprise in terms of growth across the emerging markets, not because we think it will be outstanding, but because expectations are so low," he added.
One of the major concerns surrounding emerging markets is falling commodity prices. Ricketts says the outlook for the commodities side of the emerging markets story doesn’t look good, but this does not worry him.
"A lot of the funds we use are because we like the consumer story in the emerging markets," he continued.
"Yes, I don’t think infrastructure spending in China will ever go back to pre-crisis levels as its economy is in a transition phase. Also, the previous high price of commodities was because companies increased production at the wrong time."
"However, that isn’t a massive problem for us. Emerging markets are a big place and though the index is driven by commodities and could struggle, we aren’t buying trackers," he added.
The manager also points out that global sentiment towards emerging markets could be improving anyway.
"The main fear was that when the Fed mentioned it would taper QE that there would be huge outflows from emerging market equities. However, to most people’s surprise, markets were more resilient and liquidity wasn’t an issue."
"That has improved long-term confidence, because if you think back to 1997 during the crisis, liquidity went and markets had to close. It shows that emerging markets have come a long way since then," he added.
Ricketts' Margetts Venture Strategy fund has an ongoing charges figure (OCF) of 2.66 per cent and requires a minimum investment of £1,000.