Active approach
Seeking to take advantage of short-term divergences in market price and intrinsic business value
Fundamental, bottom-up process
Focusing on companies rather than countries
Emphasis on sustainable franchises
With long-term growth prospects trading at attractive valuations
Market price and intrinsic business value are positively correlated in the long run, but short-term divergences can emerge. We seek to take advantage of these divergences through our disciplined, fundamental, bottom-up approach. We aim to invest in companies with sustainable franchises when they are trading below their intrinsic value.
Faster growing economies
- Gross Domestic Product (GDP) growth is higher in emerging markets, as compared with developed markets, as they continue to benefit from favorable demographics, a growing middle-class, and structural growth opportunities.*
Seismic growth of the middle-class
- We believe the growth of the “middle-class” in emerging markets over the next decade and the opportunity it presents cannot be overestimated.
Reasonable valuations
- In addition to attractive growth, emerging markets also look inexpensive, especially when compared with developed US markets.
Opportunity for active management
- Pervasive inefficiencies within the space offer attractive opportunities for active managers to benefit from mispriced securities.
*International Monetary Fund World Economic Outlook Report, April 2023
Fundamental, bottom-up research is the core of our investment process. Although we incorporate top-down country and economic views into our company analysis, we expect stock selection will be our primary source of alpha over a full-market cycle.
Opportunity universe
- MSCI Emerging Markets Index
- Non-index emerging markets companies
- Non-emerging markets companies with significant exposure to emerging markets
Idea generation
- Iterative identification of sustainable franchises (core list)
- Analysis of cyclical and secular change
- Proprietary company and industry research
Fundamental research
- Sustainable franchise analysis
- Intrinsic value assessment
Portfolio construction and risk management
- Bottom-up driven; conviction based
- Country weight guidelines ensure diversification
Sell discipline
- Price appreciation
- Deterioration in fundamentals
- More attractive alternatives
MSCI Emerging Markets Index: represents large- and mid-cap stocks across emerging market countries worldwide. The index covers approximately 85% of the free float-adjusted market capitalization in each country. Index “net” return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate.
For more information on our equity capabilities
Risks
International investments entail risks including fluctuation in currency values, differences in accounting principles, or economic or political instability. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility, lower trading volume, and higher risk of market closures. In many emerging markets, there is substantially less publicly available information and the available information may be incomplete or misleading. Legal claims are generally more difficult to pursue.
Some accounts within the composite may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The use of illiquid securities is strictly constrained by client investment policy.
IBOR risk is the risk that changes related to the use of the London interbank offered rate (LIBOR) or similar rates (such as EONIA) could have adverse impacts on financial instruments that reference these rates. The abandonment of these rates and transition to alternative rates could affect the value and liquidity of instruments that reference them and could affect investment strategy performance.
The disruptions caused by natural disasters, pandemics, or similar events could prevent the Strategy from executing advantageous investment decisions in a timely manner and could negatively impact the Strategy’s ability to achieve its investment objective and the value of the Strategy’s investments.
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