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

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) 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%
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 March 31, 2021)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 97.0%
Cash 3.0%
Strategy Characteristics
Strategy Benchmark
No. of holdings 117 1391
Weighted avg. market cap (US $MM) $150,014 $126,383
NTM price/earnings 10.9 13.8
Price/book value 1.7 2.1
Dividend yield (%) 2.1 1.8
NTM EPS revision (wtd. avg) 12.3 8.3
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
China Construction Bank Corp. China 2.0%
Tencent Holdings Ltd. China 1.5%
KIA MOTORS Corp. South Korea 1.0%
Hindalco Industries India 1.0%
Hon Hai Precision Industry Co., Ltd. Taiwan 1.0%
Taiwan Semiconductor Manufacturing Co., Ltd. Taiwan 1.0%
MediaTek, Inc. Taiwan 0.9%
POSCO South Korea 0.9%
JD.com, Inc. China 0.9%
Vale SA Brazil 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 24.6% 20.9%
Financials 17.7% 18.2%
Consumer Discretionary 13.6% 17.7%
Communication Services 11.4% 11.7%
Materials 9.3% 8.1%
Equity Funds 5.2% 0.0%
Energy 4.1% 4.8%
Consumer Staples 4.1% 5.6%
Health Care 2.7% 4.5%
Industrials 2.6% 4.3%
Real Estate 1.5% 2.1%
Utilities 0.0% 2.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 35.1% 37.9%
South Korea 17.2% 13.3%
Taiwan 16.5% 13.8%
India 10.0% 9.7%
Brazil 4.8% 4.5%
Russia 3.8% 3.1%
South Africa 2.4% 3.8%
Mexico 2.3% 1.7%
Thailand 1.6% 1.9%
Saudi Arabia 1.4% 2.8%
Regional Allocation
  • Emerging Asia 81.9%
  • Emerging Europe, Middle East, Africa 8.0%
  • Emerging Latin America 7.1%

Commentary (As of March 31, 2021)

Highlights

  • After positive performance in the first two months of the year, emerging Market (“EM”) equities trailed most developed markets during the month.
  • 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 will continue to reopen and activity will normalize.
  • We emphasize value factors in our multi-factor investment process and we believe the value rebound is poised to continue as economic activity accelerates.

Portfolio attribution

The Portfolio outperformed the Index in March 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 valuation factor was a positive indicator in March and it was our strongest performing bottom-up indicator during the first quarter. Our bottom-up growth, price momentum, and competitive strength factors were also positive indicators during the month. Of our top-down factors, macroeconomic, country, and sector factors were positive indicators while currency was negative in March.

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 will continue to reopen and activity will normalize. We are overweight materials and information technology stocks in the Portfolio due to attractive growth and price momentum characteristics. We are modestly underweight energy stocks in the Portfolio due to valuation considerations. From a country perspective, net earnings growth upgrades were strongest in Russia, Saudi Arabia, Brazil, and Taiwan. Chinese stocks experienced net earnings downgrades relative to other countries. In China, banks and other cyclical stocks have experienced net upgrades. However, China’s large internet companies, which dominate the Index, have experienced muted analyst revisions. Many of these companies did well during the Covid-19 pandemic and have not benefited from the economic reopening to the same extent many cyclical stocks have. China’s large internet companies have also been negatively affected by the ongoing regulatory investigation into anti-competitive practices. We are underweight Chinese stocks in the Portfolio due primarily to valuation and growth considerations.

Buoyed by steepening global yield curves, the reopening of economies, and the Covid-19 vaccine rollout, EM value stocks outperformed during the month and the quarter. The MSCI EM Value Index outpaced the MSCI EM Growth Index by 3.7% in the first quarter in local currency terms. Despite this outperformance, EM value stocks trade at a sizable discount to growth stocks. We emphasize value factors in our multi-factor investment process and we believe the value rebound is poised to continue as economic activity accelerates.

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].