Three Funds Riding The EM Rebound

Lena Tsymbaluk sits down with Ollie Smith to celebrate three funds making the most of emerging markets

Ollie Smith 6 April, 2023 | 9:52AM
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Ollie Smith: We're back to hear all about three fund managers piquing the interest of our analysts. Associate Director of Equity Fund Research, Lena Tsymbaluk, joins me now.

Lena, thanks for your time. Who is the first manager on your list today?

Lena Tsymbaluk: Yes, Ollie. So, yeah, I thought that emerging markets would be an interesting space to talk about and the three funds we like in this space, just a bit of a background. So, emerging markets flows have picked up in the last few months, which is a sign that investors are less worried about China and see catalysts for a rebound. Also, value is outperforming growth over the past two years, which means that both styles are now in line over five years and there is a strong case for both growth and value investing in emerging markets.

So, the first fund we would like to talk about is a Silver-rated JPM Emerging Markets Income Fund, which benefits from a strong team and a structured approach. The manager, Omar Negyal, focuses on quality and overall dividend yield of 130% of the MSCI Emerging Markets Index. Given the focus on quality and lower beta, this strategy tends to do well in a market driven by fundamentals, and it tends to lag in high-growth markets. So, the fund actually did really well over the last three years, which is mainly due to avoidance of Chinese internet names. They don't typically pay dividends, as you might know, and another strong – kind of what helped was the overweight to technology as well.

Smith: Great. And then, sticking with that theme, what about the second fund?

Tsymbaluk: Yeah. So, the second fund is the Silver-rated J O Hambro Global Emerging Markets Opportunities strategy. Managers James Syme and Paul Wimborne have worked together since 2006 first at Barings and now at J O Hambro. Unlike many peers, the approach is driven by the combination of top-down and bottom-up. The managers select the most attractive countries first and then pick their favorite stocks within those countries, which score well on value and growth characteristics. So, given this GAR, which is growth at reasonable price approach, the strategy should do well in most market environments. And the fund has also done really well over the last three years, which is partly due to getting their country exposure right, which is pleasant to see. So, specifically, they've been underweight China, overweight Brazil and Mexico over the period.

Smith: Sure. And then, just finally, with our third fund, what's the performance like there and who is managing it?

Tsymbaluk: Yeah. So, the third fund is GQG Partners Emerging Markets Equity Fund. It certainly differs from the crowd as it is a high-conviction strategy. It uses a quality growth approach, looking for companies with strong market position and prudent capital allocation. Investors though should be aware that the team can take large sector and country bets. For example, as of March this year, the portfolio has 26% in energy, which is about 6 times the weight of the index and 2% in consumer discretionary compared to 14% of the index. But interestingly, these two bets have worked more recently and over the last three years specifically. So, the fund has done incredibly well as well over that period.

Smith: Lena, thanks so much. For more information on fund insight and manager research, check out any of Morningstar's editorial websites internationally. Until next time, my thanks to Lena, I've been Ollie Smith for Morningstar.

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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