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 in USD
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) 0.0%0.0%10.1%-3.6%3.5%4.6%4.6%
Strategy (net) -0.1%-0.1%9.1%-4.5%2.6%3.7%3.6%
MSCI Emerging Markets -4.6%-4.6%-2.5%-7.1%1.4%3.2%2.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 0.0%0.0%10.1%-3.6%3.5%4.6%4.6%
Strategy (net) -0.1%-0.1%9.1%-4.5%2.6%3.7%3.6%
MSCI Emerging Markets -4.6%-4.6%-2.5%-7.1%1.4%3.2%2.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 7.7%19.1%19.1%-2.4%5.3%4.0%4.6%
Strategy (net) 7.4%18.1%18.1%-3.3%4.4%3.0%3.6%
MSCI Emerging Markets 7.9%10.3%10.3%-4.7%4.1%3.0%3.1%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 7.7%19.1%19.1%-2.4%5.3%4.0%4.6%
Strategy (net) 7.4%18.1%18.1%-3.3%4.4%3.0%3.6%
MSCI Emerging Markets 7.9%10.3%10.3%-4.7%4.1%3.0%3.1%
Fund 2023202220212020201920182017201620152014201320122011201020092008
Strategy (gross) 19.1%-21.8%-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) 18.1%-22.5%-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 10.3%-19.7%-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
2023202220212020201920182017201620152014201320122011201020092008
19.1%-21.8%-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%
18.1%-22.5%-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%
10.3%-19.7%-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 January 31, 2024)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 98.7%
Cash 1.3%
Strategy Characteristics
Strategy Benchmark
No. of holdings 187 1440
Weighted avg. market cap (US $MM) $64,186 $74,464
NTM price/earnings 7.7 11.7
Price/book value 1.2 1.6
Dividend yield (%) 4.2 2.9
NTM EPS revision (wtd. avg) 9.5 -1.3
TOP 10 HOLDINGS
Security Country Active weight*
Kia Corp. South Korea 2.0%
Banco do Brasil SA Brazil 2.0%
PetroChina Co., Ltd. China 1.9%
China Construction Bank Corp. China 1.6%
REC Ltd. India 1.5%
Oil & Natural Gas Corp. Ltd. India 1.3%
KB Financial Group, Inc. South Korea 1.2%
Agricultural Bank Of China China 1.1%
Vipshop Holdings China 1.1%
Shriram Finance Ltd. India 0.9%

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 22.9% 22.2%
Financials 19.0% 23.1%
Consumer Discretionary 15.2% 12.1%
Industrials 11.1% 6.8%
Energy 8.6% 5.6%
Communication Services 7.9% 8.7%
Health Care 3.9% 3.6%
Consumer Staples 3.2% 5.9%
Materials 3.2% 7.4%
Utilities 2.5% 2.8%
Real Estate 1.3% 1.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 25.3% 24.9%
India 21.7% 18.0%
Taiwan 19.7% 16.6%
South Korea 15.5% 12.2%
Brazil 7.1% 5.7%
Turkey 2.3% 0.7%
Saudi Arabia 1.6% 4.3%
Mexico 1.4% 2.8%
Thailand 1.2% 1.7%
United Arab Emirates 1.2% 1.3%
Regional Allocation
  • Emerging Asia 84.4%
  • Emerging Latin America 8.7%
  • Emerging Europe, Middle East, Africa 5.7%

Commentary (As of January 31, 2024)

Highlights

  • In January, a sell-off in Chinese technology stocks drove emerging markets equities into negative territory.
  • After appearing less attractive for much of 2023, earnings growth upgrades for EM equities are becoming, in our view, more attractive relative to those in ex-US developed markets.
  • Within EM, we continue to identify, in our view, attractive investment opportunities in small cap companies. Historically, our investment process has uncovered EM small cap stocks with alpha potential. The Portfolio's allocation to small cap stocks was near the high end of the historical range at quarter-end.

Portfolio Attribution

The Portfolio outperformed the Index in January 2024. 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 technical (price momentum), growth, competitive strength, and valuation factors were positive indicators in January. Our top-down currency, country/sector aggregate, and macroeconomic factors were negative indicators during the month.

Quarterly Investment Outlook

After appearing less attractive for much of 2023, earnings growth upgrades for EM equities are becoming, in our view, more attractive relative to those in ex-US developed markets. Within EM, communication services and consumer discretionary are exhibiting positive net upgrades. In both sectors, growth expectations for select Chinese stocks are driving the optimistic outlook. In addition, consumer discretionary stocks are also supported by positive sentiment surrounding South Korean automobile manufacturers. The Portfolio is overweight consumer discretionary stocks due in part to valuation considerations. On the negative side, materials are experiencing the most net downgrades due to lackluster demand for commodities, excluding oil, from global consumers, including China. The Portfolio is underweight materials companies, particularly those in the chemicals and metals & mining industries, due in part to growth considerations. Within EM, we continue to identify, in our view, attractive investment opportunities in small cap companies. Historically, our investment process has uncovered EM small cap stocks with alpha potential. The Portfolio's allocation to small cap stocks was near the high end of the historical range at quarter-end.

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].