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March 24, 2018, 9:51 a.m. EDT

These emerging-market fund managers focus on the explosive growth of consumer spending

Tom Masi and Nuno Fernandes of Trilogy Global Advisors scored a 42% gain last year

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By Philip van Doorn, MarketWatch

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He also went in a different direction, highlighting Eicher Motors Ltd. /zigman2/quotes/202452172/delayed IN:505200 +2.19% , which makes Royal Enfield motorcycles. Most of the Royal Enfield bikes are relatively light and easy to maintain because of their retro design. Masi called Eicher Motors an “excellent franchise” and said Royal Enfield motorcycles were “within reach of aspirational buyers in India.” He said consumers in India were drawn to the bikes’ “old-world feel,” and that the level of excitement at a Royal Enfield dealership is similar to what one might find at an Apple /zigman2/quotes/202934861/composite AAPL +0.17%  store.

China — consumer products

One of the weaknesses in the MSCI Emerging Markets Index cited by various investors over the past few years was that it has traditionally excluded “A-shares,” which are those traded in mainland China, rather than in Hong Kong. That is changing this year as MSCI slowly phases them in. Masi and Fernandes named two of the A-shares held by the fund — companies that make baijiu, which is a traditional premium liquor that is very high in alcohol content: Kweichow Moutai Co. /zigman2/quotes/208743311/delayed CN:600519 +2.51%  and Wuliangye Yibin Co. /zigman2/quotes/205235060/delayed CN:000858 +5.83%

“The Chinese consume the same amount of alcohol as we do, but the premium products represent about 2% of the market,” Fernandes said. As the middle class grows in China, he expects annual sales growth in the category of about 20% over the next 10 years.

Moutai is the more venerable of the two brands. Masi described the process by which the company makes baijiu, aging the liquor in pits “that are hundreds of years old,” which means a limited supply of the highest-end product.

China — consumer credit

Masi estimated that market penetration for digital payments by consumers in China is about 50 times what it is in the U.S. Ant Finanical, an affiliate of Alibaba Group Holding Inc. /zigman2/quotes/201948298/composite BABA -1.03% , is the biggest corporate beneficiary of this phenomenon, with “a 54% market share,” he said. Ant Financial is expected eventually to float its own shares, which could mean tremendous gains for Alibaba and its shareholders. Alibaba was the fourth-largest holding of the AMG Trilogy Emerging Wealth Equity Fund as of Feb. 28.


Trilogy Global Advisors
Nuno Fernandes, senior portfolio manager, Trilogy Global Advisors.

While digital payments in China generally mean cash payments, Fernandes said “more and more Chinese consumers are borrowing.” The biggest bank in the country by credit-card issuance is China Merchants Bank /zigman2/quotes/209899244/delayed HK:3968 +7.32% , which is owned by the fund and controlled by the Chinese government.

Ant Financial has been growing its unsecured consumer-lending business much more rapidly than China Merchants Bank has, but Fernandes explained that the fund holds China Merchants Bank stock because “the retail market is underpenetrated” and Ant Financial isn’t yet publicly traded.

Developed markets

Some products craved by consumers in emerging markets are only provided by companies in developed markets. Fernandes named two examples held by the fund: Novo Nordisk /zigman2/quotes/203484366/composite NVO +3.56%  and LVMH Moet Hennessy Louis Vuitton SE /zigman2/quotes/206499835/delayed IT:LVMH -2.75%

“If you go with a pure emerging manager, you are not going to be able to invest in those,” Fernandes said.

Biggest holdings

Here are the top 10 holdings of the fund as of Feb. 28:

Company Ticker Share of fund Country Industry Total return - 2018 through March 19 Total return - 3 years
Baidu Inc. ADR Class A /zigman2/quotes/209050136/composite BIDU 6.0% China Internet Software/ Services 8% 18%
Sberbank Russia OJSC ADR /zigman2/quotes/207367269/delayed UK:SBER 5.7% Russia Regional Banks 7% 327%
Sands China Ltd. /zigman2/quotes/207609245/delayed HK:1928 5.0% China Casinos/ Gaming 14% 75%
Alibaba Group Holding Ltd. ADR /zigman2/quotes/201948298/composite BABA 4.7% China Internet Retail 13% 127%
China Construction Bank Corp. Class H /zigman2/quotes/208974133/delayed HK:939 4.5% China Major Banks 18% 55%
Naspers Ltd. Class N /zigman2/quotes/205954517/delayed ZA:NPN 4.4% South Korea Cable/ Satellite TV -1% 90%
Yum China Holdings Inc. /zigman2/quotes/208495167/composite YUMC 3.9% China Restaurants 2% N/A
LG Household & Health Care Ltd. /zigman2/quotes/202403284/delayed KR:051900 3.4% South Korea Household/ Personal Care -3% 56%
Turkiye Garanti Bankasi Anonim Sirketi 3.4% Turkey Regional Banks 1% 27%
PICC Property & Casualty Co. Class H /zigman2/quotes/203702440/delayed HK:2328 3.3% China Property/ Casualty Insurance 8% 7%
Sources: Morningstar Direct, FactSet

Fund performance

The AMG Trilogy Emerging Wealth Equity Fund was established in March 2015. Here’s how the fund’s three share classes have performed against their Morningstar category and the MSCI Emerging Markets Index in U.S. dollars:

Ticker Total return - 2018 through March 19 Total return - 2017 Average annual return - 3 years
AMG Trilogy Emerging Wealth Equity Fund - class N /zigman2/quotes/204006308/realtime TYWVX 3.2% 42.1% 12.2%
AMG Trilogy Emerging Wealth Equity Fund - class I /zigman2/quotes/205617438/realtime TYWSX 3.3% 42.6% 12.5%
AMG Trilogy Emerging Wealth Equity Fund - class Z /zigman2/quotes/204182546/realtime TYWIX 3.3% 42.7% 12.7%
Morningstar Diversified Emerging Markets category 3.3% 34.2% 9.0%
MSCI Emerging Markets Index - U.S. dollars 4.2% 37.8% 10.6%
Sources: Morningstar Direct, FactSet

Performance for all three share classes measures up quite well, but you can see that the share class makes a difference.

• The class N shares have a $2,000 initial investment minimum, with annual expenses of 1.45% of assets, according to Morningstar, which considers the expenses for this class “above average.”

• The class I shares have a $100,000 minimum and annual expenses of 1.16%, which Morningstar considers “average.”

• The class Z shares have a $5 million investment minimum and annual expenses of 1.05%, which Morningstar considers “below average.”

For all three share classes there is a 2% fee for shares sold within 60 days of purchase.

/zigman2/quotes/202452172/delayed
IN : India: Bombay
2,707.45
+58.15 +2.19%
Volume: 15,057
May 20, 2022 5:45p
P/E Ratio
46.55
Dividend Yield
0.78%
Market Cap
₹740.28 billion
Rev. per Employee
N/A
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 137.59
+0.24 +0.17%
Volume: 137.43M
May 20, 2022 4:00p
P/E Ratio
22.36
Dividend Yield
0.67%
Market Cap
$2226.92 billion
Rev. per Employee
$2.51M
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/zigman2/quotes/208743311/delayed
CN : China: Shanghai
¥ 1,800.01
+44.01 +2.51%
Volume: 4.19M
May 20, 2022 3:00p
P/E Ratio
40.56
Dividend Yield
1.20%
Market Cap
¥2261.17 billion
Rev. per Employee
¥3.30M
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/zigman2/quotes/205235060/delayed
CN : China: Shenzhen
¥ 162.47
+8.95 +5.83%
Volume: 45.23M
May 20, 2022 3:00p
P/E Ratio
25.35
Dividend Yield
1.86%
Market Cap
¥630.65 billion
Rev. per Employee
¥2.29M
loading...
/zigman2/quotes/201948298/composite
US : U.S.: NYSE
$ 86.79
-0.90 -1.03%
Volume: 21.02M
May 20, 2022 4:01p
P/E Ratio
23.39
Dividend Yield
N/A
Market Cap
$239.11 billion
Rev. per Employee
$515,979
loading...
/zigman2/quotes/209899244/delayed
HK : Hong Kong
$ 49.10
+3.35 +7.32%
Volume: 51.86M
May 20, 2022 4:08p
P/E Ratio
9.37
Dividend Yield
3.64%
Market Cap
$1194.73 billion
Rev. per Employee
$5.48M
loading...
/zigman2/quotes/203484366/composite
US : U.S.: NYSE
$ 107.75
+3.70 +3.56%
Volume: 2.30M
May 20, 2022 4:00p
P/E Ratio
32.09
Dividend Yield
1.04%
Market Cap
$243.21 billion
Rev. per Employee
$486,085
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/zigman2/quotes/206499835/delayed
IT : Italy: Milan
552.40
-15.60 -2.75%
Volume: 473.00
May 20, 2022 5:35p
P/E Ratio
23.13
Dividend Yield
1.81%
Market Cap
€280.41 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/209050136/composite
US : U.S.: Nasdaq
$ 124.47
-0.87 -0.69%
Volume: 2.74M
May 20, 2022 4:00p
P/E Ratio
27.44
Dividend Yield
N/A
Market Cap
$44.54 billion
Rev. per Employee
$424,245
loading...
/zigman2/quotes/207367269/delayed
UK : U.K.: London
$ 0.05
0.00 0.00%
Volume: 0.00
March 3, 2022 8:00a
P/E Ratio
0.02
Dividend Yield
1,841%
Market Cap
$26.38 billion
Rev. per Employee
$198,879
loading...
/zigman2/quotes/207609245/delayed
HK : Hong Kong
$ 15.30
+0.22 +1.46%
Volume: 10.50M
May 20, 2022 4:08p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$123.83 billion
Rev. per Employee
$560,528
loading...
/zigman2/quotes/201948298/composite
US : U.S.: NYSE
$ 86.79
-0.90 -1.03%
Volume: 21.02M
May 20, 2022 4:01p
P/E Ratio
23.39
Dividend Yield
N/A
Market Cap
$239.11 billion
Rev. per Employee
$515,979
loading...
/zigman2/quotes/208974133/delayed
HK : Hong Kong
$ 5.61
+0.12 +2.19%
Volume: 257.94M
May 20, 2022 4:08p
P/E Ratio
4.08
Dividend Yield
7.63%
Market Cap
$1416.20 billion
Rev. per Employee
$4.56M
loading...
/zigman2/quotes/205954517/delayed
ZA : South Africa
160,372
+1,888 +1.19%
Volume: 1.13M
May 20, 2022 5:05p
P/E Ratio
2.94
Dividend Yield
0.41%
Market Cap
669.66 billion
Rev. per Employee
3.65M
loading...
/zigman2/quotes/208495167/composite
US : U.S.: NYSE
$ 42.19
+1.43 +3.51%
Volume: 3.70M
May 20, 2022 4:00p
P/E Ratio
21.26
Dividend Yield
1.14%
Market Cap
$17.78 billion
Rev. per Employee
$22,142
loading...
/zigman2/quotes/202403284/delayed
KR : S. Korea: KRX
685,000
+17,000 +2.54%
Volume: 62,118
May 20, 2022 3:30p
P/E Ratio
16.42
Dividend Yield
1.75%
Market Cap
₩10910.85 billion
Rev. per Employee
₩1.81B
loading...
/zigman2/quotes/203702440/delayed
HK : Hong Kong
$ 7.80
+0.10 +1.30%
Volume: 16.93M
May 20, 2022 4:08p
P/E Ratio
6.45
Dividend Yield
6.14%
Market Cap
$173.49 billion
Rev. per Employee
$2.94M
loading...
/zigman2/quotes/204006308/realtime
US : U.S.: Nasdaq
$ 10.10
+0.08 +0.80%
Volume: 0.00
May 20, 2022
loading...
/zigman2/quotes/205617438/realtime
US : U.S.: Nasdaq
$ 10.22
+0.08 +0.79%
Volume: 0.00
May 20, 2022
loading...
/zigman2/quotes/204182546/realtime
US : U.S.: Nasdaq
$ 10.21
+0.08 +0.79%
Volume: 0.00
May 20, 2022
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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