Diversified exposure to emerging markets, capturing value and growth

The Emerging Markets strategy invests primarily in common stocks of emerging markets companies. The strategy combines value and growth, and bottom-up and top-down factors. Our quantitative stock selection process is focused on attractively valued companies with superior earnings prospects and positive market sentiment; these companies should produce consistent returns across investment cycles. We use the same approach to select sectors and countries, comparing valuation against earnings growth and market sentiment. At the country level, we also consider the health of the macro-economy. Our quantitative process seeks to combine these factors while attempting to avoid undue sources of risk, which for this strategy we define as tracking error (a measurement of dispersion from a benchmark index).

Benchmark
MSCI Emerging Markets
Inception
March 29, 2007
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Strategy overview

The portfolio managers discuss our Emerging Markets Equity strategy.

Portfolio managers

Quantitative Portfolio Manager
Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -12.9%-19.3%-26.3%0.8%1.9%4.1%4.1%
Strategy (net) -13.1%-19.6%-27.0%-0.1%1.0%3.2%3.1%
MSCI Emerging Markets -11.3%-17.5%-25.0%0.9%2.5%3.4%3.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -12.9%-19.3%-26.3%0.8%1.9%4.1%4.1%
Strategy (net) -13.1%-19.6%-27.0%-0.1%1.0%3.2%3.1%
MSCI Emerging Markets -11.3%-17.5%-25.0%0.9%2.5%3.4%3.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -12.9%-19.3%-26.3%0.8%1.9%4.1%4.1%
Strategy (net) -13.1%-19.6%-27.0%-0.1%1.0%3.2%3.1%
MSCI Emerging Markets -11.3%-17.5%-25.0%0.9%2.5%3.4%3.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -12.9%-19.3%-26.3%0.8%1.9%4.1%4.1%
Strategy (net) -13.1%-19.6%-27.0%-0.1%1.0%3.2%3.1%
MSCI Emerging Markets -11.3%-17.5%-25.0%0.9%2.5%3.4%3.0%
Fund 20212020201920182017201620152014201320122011201020092008
Strategy (gross) -0.3%18.1%18.1%-16.8%41.1%10.5%-15.1%3.4%-1.3%27.5%-17.0%28.0%90.5%-57.8%
Strategy (net) -1.2%17.1%17.1%-17.5%39.8%9.4%-16.0%2.4%-2.3%26.2%-17.9%26.7%88.7%-58.2%
MSCI Emerging Markets -2.2%18.7%18.9%-14.2%37.8%11.6%-14.6%-1.8%-2.3%18.6%-18.2%19.2%79.0%-53.2%
Strategy (gross)
Strategy (net)
MSCI Emerging Markets
20212020201920182017201620152014201320122011201020092008
-0.3%18.1%18.1%-16.8%41.1%10.5%-15.1%3.4%-1.3%27.5%-17.0%28.0%90.5%-57.8%
-1.2%17.1%17.1%-17.5%39.8%9.4%-16.0%2.4%-2.3%26.2%-17.9%26.7%88.7%-58.2%
-2.2%18.7%18.9%-14.2%37.8%11.6%-14.6%-1.8%-2.3%18.6%-18.2%19.2%79.0%-53.2%

Portfolio (as of June 30, 2022)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 96.2%
Cash 3.8%
Strategy Characteristics
Strategy Benchmark
No. of holdings 169 1382
Weighted avg. market cap (US $MM) $69,781 $67,746
NTM price/earnings 6.1 12.2
Price/book value 1.0 1.7
Dividend yield (%) 5.1 3.0
NTM EPS revision (wtd. avg) -1.1 -5.3
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
China Construction Bank Corp. China 2.0%
PetroChina Co., Ltd. China 1.2%
Banco do Brasil SA Brazil 1.2%
JBS SA Brazil 1.2%
Kia Corp. South Korea 1.1%
PICC Property & Casualty Co., Ltd. China 1.1%
Oil & Natural Gas Corp. Ltd. India 1.1%
Samsung Electronics Co., Ltd. South Korea 1.0%
Hon Hai Precision Industry Co., Ltd. Taiwan 1.0%
Cosco Shipping Holdings Co China 1.0%

A "weighted average” measures a characteristic by the market capitalization of each stock. Price/book ratio is the weighted average of the price/book ratios of all the stocks in a portfolio. The P/B ratio of a company is calculated by dividing the market price of its stock by the company’s per-share book value. The price/earnings ratio is the weighted average of the price/earnings ratios of the stocks in a portfolio. “Earnings-per-share” is the portion of a company’s profit allocated to each outstanding share of common stock. “Earnings-per-share year-over-year estimate growth (next 12 months)” is the average next-twelve-month earnings-per-share estimate from one year ago for an individual company compared with that estimate today; note that this calculation is done on a company by company basis and is aggregated through a weighted average based on the individual company’s weight in the corresponding index. Also note that this characteristic is supplied directly by MSCI.

*Active defined as Portfolio weight minus MSCI EM Index weight. Holdings are subject to change.

SECTOR WEIGHTS
Sector Strategy Benchmark
Information Technology 21.7% 19.2%
Financials 20.6% 21.2%
Materials 10.9% 8.4%
Energy 9.0% 5.0%
Industrials 8.2% 5.6%
Consumer Discretionary 6.2% 14.9%
Communication Services 5.8% 10.6%
Consumer Staples 5.2% 6.1%
Equity Funds 4.8% 0.0%
Health Care 2.4% 4.0%
Utilities 1.2% 2.9%
Real Estate 0.2% 2.1%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 32.7% 35.4%
Taiwan 15.4% 14.5%
South Korea 14.2% 11.2%
India 11.8% 12.7%
Brazil 5.4% 4.9%
Saudi Arabia 3.7% 4.3%
Thailand 2.9% 1.9%
South Africa 2.8% 3.5%
Indonesia 2.1% 1.8%
United Arab Emirates 1.7% 1.3%
Regional Allocation
  • Emerging Asia 79.5%
  • Emerging Europe, Middle East, Africa 9.8%
  • Emerging Latin America 6.9%

Commentary (As of June 30, 2022)

Highlights

  • Emerging market (“EM”) equity prices fell in June amid concerns that global growth is slowing.
  • Buoyed by supportive monetary and fiscal policy, hopes of easing Covid-19 restrictions, and an improving regulatory landscape, China was the top performing country within the MSCI EM Index in June and in the second quarter. China is our largest country underweight in the Portfolio, due in part to poor corporate growth estimate revisions, which remain negative despite the marginally positive news flow.
  • We believe the global growth concerns are already reflected in the share prices of many EM energy and industrial companies and we continue to identify investment opportunities with attractive risk-adjusted return potential in these sectors.

Portfolio attribution

The Portfolio underperformed the Index in June 2022. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Portfolio's investable universe. Our bottom-up price momentum and growth factors were negative indicators during the month. Our valuation and competitive strength factors were positive indicators. Of our top-down factors, our sector, country, and currency factors were negative indicators. Our macroeconomic factor was a positive indicator in June.

Investment outlook

We remain overweight South Korean and Taiwanese stocks in the Portfolio due to compelling valuations and top-down considerations. We are closely monitoring corporate earnings growth forecasts and price momentum as these countries are export-oriented and therefore linked to global growth. Given China’s large economy, the country’s companies tend to be more domestically oriented and relatively insulated from a global economic slowdown compared to peers in the region. From a sector perspective, our largest overweights include energy companies, due in part to valuation, growth, and price momentum considerations. We are also overweight industrial companies in the Portfolio due to favorable growth and price momentum characteristics. While these sectors outperformed the MSCI EM Index during the second quarter, fears of a global slowdown weighed on them in June. We believe the global growth concerns are already reflected in the share prices of many EM energy and industrial companies and we continue to identify investment opportunities with attractive risk-adjusted return potential in these sectors.

The market commentary expresses the portfolio managers’ views as of the date of this report and should not be relied on as research or investment advice regarding any stock. These views and the portfolio holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. The securities identified and described above do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. Past performance does not guarantee future results. For a description of our performance attribution methodology, or to obtain a list showing every holding's contribution to the overall account's performance during the quarter, please contact our product manager, Kevin Moutes, at 310-231-6116 or [email protected].