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) 3.0%8.3%50.8%9.1%14.1%5.6%6.6%
Strategy (net) 2.8%7.9%49.4%8.1%13.1%4.6%5.6%
MSCI Emerging Markets 4.9%7.4%51.5%10.0%14.3%4.5%5.3%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 3.0%8.3%50.8%9.1%14.1%5.6%6.6%
Strategy (net) 2.8%7.9%49.4%8.1%13.1%4.6%5.6%
MSCI Emerging Markets 4.9%7.4%51.5%10.0%14.3%4.5%5.3%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 5.2%5.2%60.9%6.1%12.7%5.4%6.5%
Strategy (net) 4.9%4.9%59.5%5.1%11.7%4.4%5.4%
MSCI Emerging Markets 2.3%2.3%58.9%6.9%12.5%4.0%5.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 5.2%5.2%60.9%6.1%12.7%5.4%6.5%
Strategy (net) 4.9%4.9%59.5%5.1%11.7%4.4%5.4%
MSCI Emerging Markets 2.3%2.3%58.9%6.9%12.5%4.0%5.0%
Fund 2020201920182017201620152014201320122011201020092008
Strategy (gross) 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) 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 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
2020201920182017201620152014201320122011201020092008
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%
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%
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 May 31, 2021)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 97.5%
Cash 2.5%
Strategy Characteristics
Strategy Benchmark
No. of holdings 120 1424
Weighted avg. market cap (US $MM) $137,338 $113,899
NTM price/earnings 10.3 13.3
Price/book value 1.7 2.1
Dividend yield (%) 2.1 1.7
NTM EPS revision (wtd. avg) 11.1 2.2
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
China Construction Bank Corp. China 1.9%
Tencent Holdings Ltd. China 1.7%
Hindalco Industries India 1.2%
Kia Corp. South Korea 1.0%
MediaTek, Inc. Taiwan 1.0%
POSCO South Korea 1.0%
Vale SA Brazil 0.9%
Fubon Financial Holding Co., Ltd. Taiwan 0.9%
Hon Hai Precision Industry Co., Ltd. Taiwan 0.9%
Delta Electronics, Inc. Taiwan 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 24.0% 20.4%
Financials 17.9% 18.3%
Consumer Discretionary 13.2% 16.8%
Communication Services 11.3% 11.4%
Materials 10.7% 8.7%
Equity Funds 5.3% 0.0%
Energy 4.5% 4.9%
Consumer Staples 3.8% 5.7%
Health Care 3.1% 5.0%
Industrials 2.9% 4.7%
Real Estate 0.8% 2.1%
Utilities 0.0% 2.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 33.4% 37.6%
South Korea 17.3% 13.0%
Taiwan 17.1% 13.9%
India 10.2% 10.0%
Brazil 5.2% 5.0%
Russia 4.0% 3.2%
South Africa 2.5% 3.8%
Mexico 2.2% 1.8%
Thailand 1.9% 1.7%
Saudi Arabia 1.4% 2.8%
Regional Allocation
  • Emerging Asia 81.3%
  • Emerging Europe, Middle East, Africa 8.8%
  • Emerging Latin America 7.4%
  • Multi Region Emerging (ETF) 0.1%

Commentary (As of April 30, 2021)

Highlights

  • With contributions from each of the major region groups, emerging markets (“EM”) equities posted positive returns in April.
  • Flattening yield curves and the pause in the reopening trade weighed on value stocks during the month. However, we believe the global vaccine rollout should progress and most economies should continue to reopen, putting upward pressure on interest rates.
  • We emphasize value factors in our multi-factor investment process and we believe the outlook for value stocks is favorable as many economies continue to rebound from the Covid-19 crisis.

Portfolio attribution

The Portfolio underperformed the Index in April 2021. 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-upgrowth factor was the strongest indicator in April. Our valuation, price momentum and competitive strength factors were also positive indicators during the month. Of our top-down factors, macroeconomic and currency were negative indicators while country and sector were positive.

Investment outlook

Within EM, earnings growth upgrades have generally been strongest in cyclical sectors, particularly materials, energy, and information technology, according to analyst estimates. Growth upgrades for these sectors reflect analysts’ optimism that economies continue to reopen and economic activity will accelerate. We are overweight materials and information technology stocks in the Portfolio due to attractive growth and price momentum characteristics. We are underweight energy stocks due to valuation considerations. Earnings growth upgrades have been weakest for stocks in the consumer discretionary, communication services, and real estate sectors. From a country perspective, net upgrades were particularly strong in Russia, Taiwan, and Saudi Arabia. Chinese stocks experienced the most net downgrades on a float-weighted basis. China’s economy fared relatively well during the pandemic and Chinese companies are not experiencing the cyclical rebound from a low base to the same extent as stocks in some other countries. Additionally, the Chinese government is paring back stimulus measures and consequently providing less support for its economy. We are underweight Chinese stocks in the Portfolio due to bottom-up and top-down considerations. After outperforming during the first quarter, the MSCI EM Value Index underperformed the MSCI EM Growth Index in April. Flattening yield curves and the pause in the reopening trade weighed on value stocks during the month. However, we believe the global vaccine rollout should progress and most economies should continue to reopen, putting upward pressure on interest rates. This would provide a positive backdrop for value stocks, which trade at a sizable discount to growth stocks. We emphasize value factors in our multi-factor investment process and we believe the outlook for value stocks is favorable as many economies continue to rebound from the Covid-19 crisis.

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].