Emerging Markets Discovery Equity Fund

Risk Considerations

The Fund is actively managed and invests mainly in a widely diversified portfolio of shares of emerging market companies.
Investment in the Fund involves risks, including general investment risk, equity market risk, risks associated with depositary receipts, emerging markets risk, exclusion criteria risk, risk associated with high volatility of equity markets in emerging countries, risk associated with regulatory/exchanges requirements of the equity markets in emerging countries, geographic concentration risk, small and mid-capitalisation shares risk and currency risk which may result in loss of a part or the entire amount of your investment.
The Fund may use derivatives for hedging and efficient portfolio management and is subject to derivatives risk. Exposure to derivatives may lead to a risk of significant loss by the Fund.
The value of the Fund can be volatile and could go down substantially.
Investors should not invest in the Fund solely based on this website.

Investment involves risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Overview

Manager's Outlook

We believe that EMs are structurally stronger than in the past and will benefit from increased capital expenditure from corporates, which have in recent years largely been spending on maintenance and which now need to ramp up investment spending for expansion. EMs will also likely benefit from the green energy transition as there is greater focus on environmental protection and the need to offset climate change. This in turn is expected to yield many investment opportunities in traditional or "forgotten" sectors. We think this could be the start of a multi-year investment and capital expenditure cycle as companies have been underinvesting while heightened geopolitical tensions could trigger a change in global supply chains to increase their resilience.

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This favourable economic backdrop should continue to support a "Value" investment style change in emerging markets, in our view. We think the recent outperformance of value stocks over growth stocks is a sustainable trend given that the valuation gap between the two styles remains wide by historical standards.

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In China, where the portfolio has the largest exposure, the regulatory cycle is cyclical in nature and is approaching an inflexion point. As the cycle fades, we see support emerging from stimulus policies and easing of restrictions. However, such incremental support will likely be selective and will only target certain sectors. An unanticipated slowdown in China is a key risk, but underinvestment in recent years should present an opportunity for traditional industries.

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We believe there are ample opportunities in EM for us to identify pockets of "forgotten" stocks with asymmetrical risk-return profiles, where fundamental changes or operational improvements may drive a re-rating, with potential downside support from solid balance sheets and/or healthy dividends. The portfolio is designed to take advantage of an expanded and evolving universe of "forgotten stocks" in EM that we believe are under-owned and under-researched by mainstream investors and which have asymmetrical risk-return profiles and positive self-help stories. We think these businesses are poised for positive fundamental change or operational improvements that should lead to higher valuations over time.

Strategy

Fund Summary

We look for signs of positive fundamental change among stable, but unloved, businesses that we believe are facing unwarranted scepticism from investors. Meeting company management is central to our approach, as we aim to identify quality teams with strategic vision, a roadmap for success and the ability to execute. The promotion of environmental and/or social characteristics is achieved through the fund's commitment to maintain at least 10% of the value of its portfolio invested in Sustainable Investments, as defined by the SFDR. Additionally, we apply a proprietary responsible screen (exclusion list). The manager is not constrained by the fund’s benchmark, which is used for performance comparison purposes only.

Performance - Net of Fees

Past performance is not a reliable indicator of future performance.

30-Nov-2023 - Ernest Yeung, Portfolio Manager,

Emerging market equities advanced in November following three consecutive months of declines. Rising hopes for the end of US interest rate increases, expectations of more growth-supportive policies in China, and signs of the semiconductor cycle bottoming out drove market gains. Within the portfolio, our stock choices in China detracted from relative performance. Our lack of exposure to a rising e-commerce company hurt as it outperformed due to stronger-than-expected results in the third quarter. Among stocks we own, our position in a brewer dragged as third-quarter sales disappointed due to the unfavorable weather in northern China and a high-comparison base from last summer. We continue to like the company given its improved industry structure, rising interest in domestic brands and it is a more commercial organisation spurred by its stock incentive plan. Taiwan hampered portfolio performance due to our underweight allocation. Technology-heavy Taiwan equities held on to gains during the month despite political uncertainty in the lead-up to the island’s presidential election in 2024. In contrast, Brazil contributed the most to relative returns, thanks to stock selection. In particular, owning shares of one of Latin America’s largest investment banks helped following its third-quarter results, which beat expectations.

31-Mar-2022 - Ernest Yeung, Portfolio Manager,

Our positions reflected our focus on self-help stories, our re-opening thesis, and traditional economy stocks benefiting from the higher capital expenditure that corporates have been under-invested in the last few years. It also benefits from the transition to a greener world mapped out at last November's COP26 climate summit.

We believe our research has helped us identify good investment opportunities among EM companies whose managements have become proactive in restructuring in the wake of the pandemic. These self-help measures include initiatives like cutting costs, selling assets, shifting capacity, and changing product mix.�

In our view, there are ample opportunities for us to identify pockets of "forgotten" EM stocks. For example, we were positioned in a cyclical commodity play in the first stage of the pandemic recovery in 2020. Then we rotated to the next stage and added to financials as the rate hike cycle started. Now, we believe the recovery is entering yet another stage and portfolio positioning has shifted back towards the core end of value.

China �

We took advantage of the recent market weakness as we believe that regulatory crackdowns are cyclical in nature.

We found a compelling entry point into online travel agent Trip.com on our economic re-opening thesis and on valuation grounds. The company's Q4 2021 earnings beat expectations and we believe the company will maintain its dominant market share in the online travel agency business thanks to its competitive advantages. In our view, it is well positioned to enjoy the long-term growth of Chinese outbound travel, which generates faster revenue growth and higher operating margins than domestic business.
We bought shares of Tingyi, one of the largest food and beverages companies in China by revenue with market-leading positions in most of its segments in noodles and beverages.

Russia �

The Russian market was a relatively small part of our portfolio, but risks increased meaningfully after the sanctions by Western nations significantly impacted the financial sector and its ability to settle U.S. dollar transactions. We quickly reduced our risk and exposure to Russia during the quarter.

Mexico

We added to our positions in Mexico because we felt stocks were trading at attractive valuations and the economy was set to benefit from the uptrend in commodity prices.�

We bought shares in Grupo Mexico, which we think is a sum-of-the-parts story offering a resilient dividend clip on copper in the medium term and unique organic growth optionality in the longer term.

Consumer Discretionary

We cut our exposure to the sector as a result of reduced holdings in certain segments.

We trimmed Prosus, a Dutch multinational conglomerate company, which holds Naspers' global internet business. It holds shares in Tencent, which faced regulatory headwinds. The company also had to write off a sizeable stake in one of Russia's largest internet companies, VK Group, as a consequence of sanctions on the group's CEO amidst the conflict in Ukraine.
Huayu Automotive is one of China's biggest auto parts suppliers. We sold shares as we see mounting pressure for Huayu's major customers, Volkswagen and General Motors, from local brands. The company itself faces competition from local suppliers in many of the emerging areas such as electrification and advanced driver assistance systems.

Brazil

We found some opportunities in Brazil, where we think valuations are attractive in an economy benefiting from strong commodity prices.

We bought shares of packaging company Klabin, which is an environmental, social, and governance (ESG) friendly business and in our view is undervalued by mainstream investors. It is a low-cost producer adding capacity at the low-end of the cost curve in a commodity with attractive medium-term fundamentals. As an integrated paper and packaging producer, we believe it is likely to benefit from strong secular trends such as increasing e-commerce penetration, plastic-to-paper substitution, and increasing interest in negative emission businesses and technologies.
BTG Pactual is one of the largest investment banks in Latin America. We bought shares as the bank is diversifying into asset and wealth management businesses, which we think have more predictable earnings and deserve a higher multiple than the firm's sales, trading, and investment banking businesses.

30-Nov-2023 - Ernest Yeung, Portfolio Manager,

Financials remains our biggest absolute allocation and our largest overweight. In addition to the sector benefitting from the interest rate hike cycle, we continue to believe that emerging-market banks play a crucial role in supporting corporate spending and green energy transition. We believe that the banks we own have strong capital buffers, low-risk balance sheets, high-quality franchises, and are well-positioned to gain market share and accelerate loan growth. We also own insurers with strong balance sheets and reliable management teams which are aiming to upgrade the quality of their sales.

30-Nov-2023 - Ernest Yeung, Portfolio Manager,

Mexico remains our largest relative country overweight exposure. Here, we prefer to own businesses that benefit from exports and from companies moving production to Mexico as they seek to manufacture closer to the US. For example, we own one of the world’s largest corn flour and tortilla producers with a high visibility of margin recovery. We increased our allocation in Brazil after recently acquiring shares of an aircraft manufacturer. We are in the initial stages of an upcycle in the global aerospace market and believe this creates a good top-down set up for the plane maker.

30-Jun-2022 - Ernest Yeung, Portfolio Manager,

KE Holdings is one of China's largest property brokerage platforms. We bought more shares in the company as we feel it will gain market share due to its strong network and margin improvement as property sector activity recovers.
We bought shares in Brazilian mall developer Multiplan Empreendimentos, which we feel will see strong rental growth momentum as tenant sales gather pace. It has a healthy cash position, stable occupancy levels and good cost control, in our view.
We bought shares in South Korean food company CJ Cheiljedang as we believe the company's shares will perform well in an inflationary environment.
Tingyi Holding is a leading food company in China. We purchased shares in the company as we believe its margins will improve as the current environment of commodity inflation will likely fade and following the launch of new premium products.
We purchased shares in Weichai Power, a leading diesel and truck engine manufacturer in China. We believe the company stands to benefit from increasing capital expenditure in China as well as from relatively loose monetary conditions.
China Oilfield Services is one of the largest Chinese oil services companies. We bought shares in the company as we believe its future prospects are levered to the increase in oil and gas capital expenditures internationally.� ��
We increased our holding in Alibaba Group as we think that the market valuation of this e-commerce giant has priced in a pessimistic scenario. We see the stock benefiting from cost savings, a cyclical rebound, and improved capital allocation.
Ping An Insurance is one of the largest insurers in China. The environment has been challenging for the company amid lockdowns in major cities; we sold shares in the company as we believe we can find better opportunities elsewhere in the sector.
We sold shares of Brazilian bank Banco Bradesco as we believe it is more exposed to disruption and competition than its peers.
We acquired shares of Yangzijiang Financial as a result of the spin-off from Yangzijiang Shipbuilding. The company's principal businesses are debt investment and investment management.

30-Jun-2022 - Ernest Yeung, Portfolio Manager,

Shares of KE Holdings rose after the company undertook a dual listing of its shares and began trading on the Hong Kong stock exchange. We like this stock on the thesis that the property sector will recover and that its home decoration business will drive future incremental growth.
Tsingtao Brewery, one of the largest breweries in China, reported in-line earnings for the first quarter despite the omicron outbreak which had resulted in strict lockdowns in several large cities. We continue to like this stock because of its low valuations and with investors underappreciating the significant progress in its premium portfolio, product momentum driven by growing interest in domestic brands, and a more commercial organization spurred by the stock incentive plan. In our view, an improved industry structure also provides a favorable backdrop for earnings growth.
Tongcheng Travel Holdings reported better-than-expected first-quarter results and the shares rose. We believe the company, one of the biggest online travel agencies in China, will benefit from easing of the lockdown restrictions as it derives almost all its revenues from domestic travel. We think the company will post fast growth as it is in a strong position to capture the rapid growing travel demand of users in lower-tier cities.
Shares in Petronet LNG, one of the largest LNG (liquified natural gas) importers in India, climbed after it reported strong earnings during the quarter. We continue to like the stock due to its attractive valuations even after pessimistic assumptions regarding tariffs and utilization.
Ambuja Cement shares rose after the Indian conglomerate Adani Group's plans to acquire Switzerland-based Holcim's majority stake in the company triggered an open offer requirement for the rest of the company's shares.
Shares of Hon Hai Precision, one of the world's largest electronics goods manufacturers, rose after it posted a multi-year high net income in the first quarter, gaining market share from its rivals. Despite the deteriorating global macroeconomic environment, company management remained upbeat, focusing on market share gains and surging demand in various computing and cloud devices.
Bizlink Holding performed strongly after its earnings rose sharply. This cable manufacturer has potential upside from its auto and health care business, in our view.
Singapore automobile distributor Jardine Cycle & Carriage added value after it reported strong earnings during the quarter. The improvement was driven primarily by the domestic economic recovery and higher commodity prices. The company benefited from luxury sales tax incentives, and the agribusiness division recorded higher crude palm oil prices.�
Exposure to China's Yangzijiang Shipbuilding, one of the biggest shipbuilders in the world, added value as we believe there is renewed investment interest and reliance on energy internationally. In our view, this stock is a value and late cycle play on the recovery in global shipping demand. We anticipate that a demand upcycle for ship orders will be met with a disciplined supply response after a decade-long bear market for the shipbuilding industry.
Shares of OTP, Hungary's leading bank and the dominant retail franchise in the country, fell due to its business in and exposure to Russia and Ukraine. We are confident the bank is sufficiently capitalized to absorb the losses from its Russian operations and believe there is little balance sheet risk involved. We think future return ratios are likely to rebound supported by higher interest rates and the integration of a Slovenian acquisition.

China �

Russia �

Mexico

Consumer Discretionary

Brazil

Risks

Typical Investor