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) -4.5%4.3%23.7%9.6%10.8%6.3%6.2%
Strategy (net) -4.6%3.7%22.7%8.6%9.8%5.3%5.2%
MSCI Emerging Markets -4.2%3.1%21.5%10.2%10.8%5.2%4.9%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -4.5%4.3%23.7%9.6%10.8%6.3%6.2%
Strategy (net) -4.6%3.7%22.7%8.6%9.8%5.3%5.2%
MSCI Emerging Markets -4.2%3.1%21.5%10.2%10.8%5.2%4.9%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 3.8%9.2%43.4%11.4%13.3%5.8%6.6%
Strategy (net) 3.6%8.7%42.1%10.4%12.3%4.8%5.6%
MSCI Emerging Markets 5.1%7.6%41.4%11.7%13.4%4.7%5.3%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 3.8%9.2%43.4%11.4%13.3%5.8%6.6%
Strategy (net) 3.6%8.7%42.1%10.4%12.3%4.8%5.6%
MSCI Emerging Markets 5.1%7.6%41.4%11.7%13.4%4.7%5.3%
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 August 31, 2021)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 97.7%
Cash 2.3%
Strategy Characteristics
Strategy Benchmark
No. of holdings 134 1407
Weighted avg. market cap (US $MM) $113,644 $98,278
NTM price/earnings 9.0 12.3
Price/book value 1.6 2.0
Dividend yield (%) 2.5 2.0
NTM EPS revision (wtd. avg) 13.9 2.9
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
China Construction Bank Corp. China 1.8%
Hindalco Industries India 1.5%
Fubon Financial Holding Co., Ltd. Taiwan 1.1%
Kia Corp. South Korea 1.0%
JBS SA Brazil 1.0%
Tencent Holdings Ltd. China 1.0%
OAO Gazprom Russia 1.0%
Hon Hai Precision Industry Co., Ltd. Taiwan 1.0%
MediaTek, Inc. Taiwan 0.9%
Sberbank Russia 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 24.2% 21.3%
Financials 18.0% 19.2%
Materials 12.3% 8.9%
Consumer Discretionary 12.3% 15.2%
Communication Services 9.6% 10.6%
Energy 5.5% 5.3%
Equity Funds 4.4% 0.0%
Industrials 4.0% 5.0%
Consumer Staples 4.0% 5.8%
Health Care 2.7% 4.7%
Real Estate 0.6% 1.8%
Utilities 0.0% 2.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 29.4% 33.9%
Taiwan 18.2% 14.8%
South Korea 17.0% 13.0%
India 11.9% 11.7%
Brazil 5.6% 5.0%
Russia 4.3% 3.6%
Mexico 2.6% 2.0%
South Africa 2.3% 3.2%
Saudi Arabia 2.0% 3.2%
Thailand 1.8% 1.7%
Regional Allocation
  • Emerging Asia 79.3%
  • Emerging Europe, Middle East, Africa 9.9%
  • Emerging Latin America 8.5%

Commentary (As of August 31, 2021)

Highlights

  • Emerging Markets (“EM”) stocks rebounded in August as the US Federal Reserve’s accommodative policies continued to support global liquidity.
  • In our continued effort to enhance our investment process for the benefit of our clients, we added a new indicator into our model’s top-down macroeconomic factor category. The factor, changes in the Markit country manufacturing Purchasing Manager’s Index (“PMI”), is used in conjunction with our Organisation for Economic Co-operation and Development (OECD) Composite Leading Indicator (“CLI”) factor to assess whether a country’s manufacturing economy is growing or shrinking.
  • While we incorporate bottom-up earnings growth factors into our assessment of each stock, we continue to emphasize valuation in our multi-factor investment process. Despite outperforming year-to-date, we believe the outlook for value stocks remains compelling as many companies in this cohort offer discounted valuations relative to history and attractive dividend yields.

Portfolio attribution

The Portfolio underperformed the Index in August 2021. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Fund’s investable universe. Our bottom-up valuation factor was our top performing indicator in August. Our bottom-upprice momentum, growth, and competitive strength factors were negative indicators during the month. Of our top-down factors, macroeconomic and country were negative indicators while sector and currency were positive.

Investment outlook

Earnings upgrades in EM have lagged developed markets, which have been led by the US. Within EM, earnings upgrades have been strongest in Russia, South Korea, and Saudi Arabia. As commodity-linked economies, Russia and Saudi Arabia have benefitted from firm oil prices. South Korea has benefitted from positive earnings revisions within the information technology sector. Indonesia, Thailand, and China have experienced the weakest earnings revisions. Indonesia and Thailand continue to experience economic challenges related to Covid-19. Chinese stocks are facing a myriad of pressures including supply chain disruptions related to Covid-19, reduced stimulus, and regulatory pressures. On a sector basis, materials, energy, and industrials have experienced the strongest earnings upgrades. We are overweight materials stocks in the Fund due to favorable earnings growth and price momentum. The sectors with the weakest earnings upgrade profiles were real estate, communication services, and consumer discretionary. Real estate’s weakness was due in part to the regulatory tightening in China and the issues faced by over-levered developers in the country. We are underweight Chinese real estate stocks in the Fund. While we incorporate bottom-upearnings growth factors into our assessment of each stock, we continue to emphasize valuation in our multi-factor investment process. Despite outperforming year-to-date, we believe the outlook for value stocks remains compelling as many companies in this cohort offer discounted valuations relative to history and attractive dividend yields.

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].