As emerging markets (EMs) assets continue to trade at a deep discount, with the MSCI Emerging Markets index dropping over 11 per cent across the year to 30 September, Money Management used FE Analytics to find some EMs funds thriving despite the chaos.
Saxo Bank’s Steen Jakobsen said EM equity market valuations, in statistical valuations, were three standard deviations cheaper than the US stock market, but a shift in growth leadership from the US to China could lead to a weaker US dollar, which would support EM growth.
So, while there are a lot of uncertainties given the current geopolitical climate, the experts don’t necessarily think investors should back away from EMs. Instead, Jakobsen said investors should be underweight US equity exposure in favour of EMs.
With that in mind, clear stalwarts in EM funds management are Stewart Investors, who opened the gates to Australian investors through their partnership with CFS.
Their CFS Stewart Investors Global Emerging Markets and CFS Stewart Investors Wholesale Global Emerging Markets Leaders funds have managed to stay above the line despite the MSCI EM index dropping to -3.24 per cent in the six months to 30 September.
The funds returned 1.63 per cent and 2.02 per cent respectively for the six months to 30 September, which, while it was a drop from 10.85 per cent and 11.49 per cent at the start of the year, is still the top performer from all funds investing in the asset class.
What’s interesting about Stewart Investors is that they are sustainability managers, opting to invest in companies with strong environmental, social and governance values. And, given the funds have managed to stay above the line in this period, proves a pretty strong case for sustainable investing.
Stewart Investors’ Jack Nelson said emerging market equities were no doubt a very risky asset class, but the firm’s approach is centred on capital preservation and bottom-up quality stock-picking.
“Given the current conditions, our portfolios have large exposures to net cash companies, those with resilient cash flows and diversified, defensive earnings profiles,” he said. “Companies which meet these criteria continue to be core holdings – for example, Tata Consultancy Services and Vitasoy.”
CFS cemented its position as a leading fund manager in emerging markets with its CFS Realindex Emerging Markets and CFS Whole Global Emerging Markets Sustainability funds also managing to outperform the MSCI EM index despite a drop.
Robeco’s Emerging Conservative Equity fund, Dimensional’s Emerging Markets Trust, Fidelity’s Global Emerging Markets fund and OnePath’s Wholesale Global Emerging Markets Share funds all similarly outperformed the MSCI EM index despite dropping just below the line into the negative for returns.
The chart below tracks the performance of the funds for the year to 30 September as compared to the MSCI Emerging Markets index.
