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) -5.1%-12.1%-18.3%3.5%4.4%4.3%4.7%
Strategy (net) -5.2%-12.3%-19.0%2.5%3.4%3.3%3.7%
MSCI Emerging Markets -5.5%-12.1%-18.1%2.6%4.7%3.3%3.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -5.1%-12.1%-18.3%3.5%4.4%4.3%4.7%
Strategy (net) -5.2%-12.3%-19.0%2.5%3.4%3.3%3.7%
MSCI Emerging Markets -5.5%-12.1%-18.1%2.6%4.7%3.3%3.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -7.3%-7.3%-12.2%5.8%5.8%4.8%5.1%
Strategy (net) -7.5%-7.5%-12.9%4.8%4.8%3.8%4.1%
MSCI Emerging Markets -6.9%-6.9%-11.1%5.3%6.4%3.7%3.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -7.3%-7.3%-12.2%5.8%5.8%4.8%5.1%
Strategy (net) -7.5%-7.5%-12.9%4.8%4.8%3.8%4.1%
MSCI Emerging Markets -6.9%-6.9%-11.1%5.3%6.4%3.7%3.8%
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 April 30, 2022)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 98.4%
Cash 1.6%
Strategy Characteristics
Strategy Benchmark
No. of holdings 158 1398
Weighted avg. market cap (US $MM) $76,176 $74,503
NTM price/earnings 6.9 12.2
Price/book value 1.1 1.8
Dividend yield (%) 3.7 2.6
NTM EPS revision (wtd. avg) 10.0 -0.6
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
China Construction Bank Corp. China 1.9%
Hindalco Industries India 1.4%
Samsung Electronics Co., Ltd. South Korea 1.4%
JBS SA Brazil 1.4%
Kia Corp. South Korea 1.2%
Banco do Brasil SA Brazil 1.2%
Fubon Financial Holding Co Taiwan 1.1%
Oil & Natural Gas Corp. Ltd. India 1.1%
Sun Pharmaceutical Industries Ltd. India 1.1%
Tata Steel India 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 23.9% 20.5%
Financials 21.1% 22.2%
Materials 13.5% 9.2%
Industrials 8.0% 5.4%
Energy 7.2% 5.0%
Consumer Discretionary 6.3% 12.7%
Communication Services 5.1% 10.3%
Consumer Staples 5.1% 6.0%
Equity Funds 4.8% 0.0%
Health Care 2.4% 3.8%
Utilities 0.9% 2.7%
Real Estate 0.0% 2.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 27.7% 30.6%
Taiwan 17.5% 15.4%
South Korea 16.3% 12.5%
India 14.6% 13.6%
Brazil 5.1% 5.3%
South Africa 3.9% 3.7%
Saudi Arabia 3.5% 4.7%
Thailand 2.9% 1.9%
Indonesia 1.8% 1.9%
Mexico 1.7% 2.2%
Regional Allocation
  • Emerging Asia 81.4%
  • Emerging Europe, Middle East, Africa 10.0%
  • Emerging Latin America 7.0%

Commentary (As of March 31, 2022)

Highlights

  • The Russian invasion of Ukraine in February fueled volatility in global equity markets and precipitated the collapse in Russian equity prices. In response, the Moscow Exchange halted equity trading and MSCI removed Russian stocks from the index provider’s investable universe, reclassifying its Russia Indexes to Standalone Market Status.
  • Many emerging market (“EM”) central banks, including Brazil, Mexico, South Africa, and South Korea, have been raising interest rates to support their currencies. Taiwan’s central bank increased interest rates by 25 basis points in March, the bank’s first interest rate increase since 2011. We are overweight Taiwanese stocks in the Portfolio due to favorable valuation and top-down characteristics.
  • We believe that rising interest rates globally should provide a tailwind for select EM value stocks, particularly if global growth headwinds remain manageable.

Portfolio attribution

The Portfolio underperformed the Index in March 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 positive indicators during the month while valuation and competitive strength were negative. Of our top-down factors, our sector factor was positive. Our macroeconomic, currency, and country factors were negative indicators in March. The largest stock-level detractors from relative performance included underweight positions in internet commerce company, Alibaba Group Holding Ltd. (China), diversified metals & mining operator, Vale SA (Brazil), and energy & industrials holding company, Reliance Industries Ltd. (India), as well as overweight positions in semiconductor engineer, MediaTek, Inc. (Taiwan) and container shipping company, Cosco Shipping Holdings Co (China). The greatest stock-level contributors to relative performance included overweight positions in multinational food processing company, JBS SA (Brazil), bank, Banco do Brasil SA (Brazil), mining & transportation company, Grupo Mexico S.A.B. de C.V. (Mexico), technology services & consulting company, Infosys Ltd. (India), and pharmaceutical company, Sun Pharmaceutical Industries Ltd. (India).

Investment outlook

Earnings growth upgrades for EM equities continue to lag those in developed markets. EM sectors with the weakest earnings upgrades were communication services, consumer discretionary, and real estate. All three sectors are dominated by Chinese stocks, which have been negatively impacted by the country’s Covid-19 containment policies. The sectors with the strongest earnings upgrades were energy, information technology, and materials. Russia is a significant exporter of energy and materials. The Russia-Ukraine conflict has limited supply in these sectors, driving up prices. From a country perspective, the major EM countries with the strongest net earnings upgrades were Turkey, Mexico, and Indonesia. Turkish companies, particularly those in the export sector, should likely benefit from the Turkish lira’s depreciation. Mexican companies should be less susceptible to a global slowdown given the country’s trade linkages with the US and Indonesia tends to benefit from higher commodity prices. The countries with the weakest net upgrades include China, Poland, and India. Covid-19 policies are weighing on Chinese companies’ growth prospects and Indian companies have been adversely impacted by rising oil prices. While we incorporate growth expectations into our multi-factor investment process, we continue to emphasize valuation in our approach. We believe that rising interest rates globally should provide a tailwind for select EM value stocks, particularly if global growth headwinds remain manageable.

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].