How emerging markets have fared during the crisis
- The current portfolio strategy is based on the belief within the team that the policy action by the monetary authorities will be sufficient to tide the global economy over until the virus is suppressed sufficiently
- We believe that the unprecedented fiscal and monetary stimulus should drive a strong recovery starting in H2 2020
Having reached the one-year anniversary of the Nedgroup Investments Global Emerging Markets Equity Fund we reflect on how it has fared particularly in light of the COVID-19 crisis.
The Nedgroup Investments Global Emerging Markets Equity Fund is invested in quality emerging market stocks with strong earnings growth potential and is unconstrained by industry or geography. Comprehensive country research and liquidity analysis is used to enhance overall returns and manage risk.
Global emerging markets fell dramatically in Q1 2020 as the impact on economic activity and corporate profits of the restrictions put in place by many governments to fight COVID-19 was discounted by markets. The current portfolio strategy is based on the belief within the team that the policy action by the monetary authorities will be sufficient to tide the global economy over until the virus is suppressed sufficiently to allow a normalisation of people’s lives.
Emerging vs. developed markets
Emerging markets have not behaved in the same way as developed markets. Since the start of 2020, developed markets’ quality and growth have led the way, especially in the tech and health sectors. Quality in emerging markets has not performed as well, partly as a result of some of the staples that have not done well, especially in India.
In terms of performance by countries, China’s response was eventually draconian and is coming out of the crisis relatively quickly. Factories are back up and running, restaurants are open, however, productivity is not as high even though everyone is back at work because of distancing and other rules.
How the fund has fared so far and outlook
We retain our focus on high quality, high ROIC companies and will look for bargains in quality and growth companies. Our current style exposures are shown below:
While we prefer to have outperformance on a positive nominal number, we were on the right side of the index with performance at -6.2% versus the MSCI Emerging Markets Index return of -12.0% for the year to 30th April 2020. We see policy response being super bullish and unprecedented. There are going to be dramatic changes for the future – taxes and deficits and more government interference.
Our Emerging Markets checklist is becoming far more bullish as shown below, with the USD currently the key indicator that we’re watching closely:
We believe that the unprecedented fiscal and monetary stimulus should drive a strong recovery starting in H2 2020. Equity markets will likely discount return to growth as new COVID-19 infections peak. We remain overweight in IT, internet, consumer discretionary and staples and underweight in materials, telecom, autos and energy but adding to this second group with high quality stocks as we start to see the recoveries.
About the Nedgroup Investments Global Emerging Markets Equity Fund
• Fund Manager: Ian Beattie, NS Partners, London
• Investment philosophy: We focus on fundamental stock selection in countries with a favourable market environment, stable politics and high governance standards. We aim to deliver long-term capital growth by investing in stocks with improving profitability and taking advantage of changes in liquidity conditions.
• Why NS partners:
- Unique investment philosophy emphasising country research and liquidity analysis
- Highly focussed on preserving capital during difficult and volatile market conditions
- Outperformance in emerging markets spanning almost a quarter of a century
- Focused risk management to avoid unintended country, sector or company exposure
- Experienced and stable team - more than 20 years together
- Boutique firm structure, core focus on investment management
Winners in Emerging Markets
• To read the summary:
The winners in Emerging Markets during the Covid-19 crisis
Q1 fund commentary:
More information on the Nedgroup Investments Global Emerging Markets Equity Fund: