By Philip van Doorn, MarketWatch
Ten years ago, “emerging-markets tech companies were assemblers of laptops, etc.,” Mathewson said, but today they are manufacturers of batteries and “leaders in memory.”
He sees the battery space as the best way to invest in the transition to electric vehicles. Mathewson named two Korean manufacturers held by the Martin Currie Emerging Markets Fund: Samsung SDI /zigman2/quotes/202065513/delayed KR:006400 -2.48% (whose global depositary receipts trade under the ticker SSDIY 0.00% ), and LG Chem /zigman2/quotes/207159357/delayed KR:051910 +0.72% (ADR: /zigman2/quotes/200863403/composite LGCLF 0.00% ).
The fund’s largest holding is Samsung Electronics /zigman2/quotes/209800866/delayed KR:005930 -0.38% , which Mathewson expects to continue to benefit from high rates of e-commerce penetration in emerging markets.
How to beat the benchmark
The Martin Currie Emerging Markets Fund’s institutional shares /zigman2/quotes/203770126/realtime MCEIX +2.69% have a five-star rating from Morningstar (the highest) and are available through investment advisers. They have a 1% annual expense ratio, which Morningstar considers “below average” for U.S. diversified EM funds. The fund’s FI /zigman2/quotes/204892231/realtime MEFIX +2.65% shares can be purchased without going through an adviser, are rated four stars and have annual expenses of 1.35%, a level Morningstar considers “average.”
The fund’s benchmark is the MSCI Emerging Markets Index /zigman2/quotes/210598082/delayed XX:891800 +2.14% , which includes more than 1,100 stocks across 26 countries.
Mathewson and his colleagues try to beat the performance of the index by managing a concentrated portfolio of 40 to 60 stocks, among index components. He said that the Martin Currie team selects stocks from the bottom up, but it is careful not to let its country allocations differ significantly from those of the index.
They look for high-quality companies that are “mispriced by the market.” Mathewson defined high-quality companies as “businesses that make good returns and have a balance sheet that will allow them to invest and take advantage of the growth opportunities we believe they will have.”
He cited Tencent Holdings /zigman2/quotes/204605823/delayed HK:700 -3.25% as an example, because of the “monetization being developed” through its “integrated payments and QR codes.”
QR codes are identifiers for small merchants that can be used to pay them with smartphones.
Mathewson drew a contrast between Tencent and Facebook /zigman2/quotes/205064656/composite FB -4.01% : “Facebook has WhatsApp and Instagram, but they are relatively stand-alone businesses. We all use WhatsApp but they are not earning from it.”
This points to much more rapid adoption of electronic payments in emerging markets than in the U.S. and other Western countries. E-commerce made up 23% of China’s retail sales in 2017, compared with 9% for the U.S., according to Statista.
Here are performance comparisons for the Martin Currie Emerging Markets Fund’s two share classes against the index, net of expenses, in U.S. dollars, through Nov. 12:
|Total return - 12 months||Total return - 3 years||Total return from inception: June 1, 2015|
|Martin Currie Emerging Markets Growth Fund - Institutional shares||21.0%||44.0%||31.7%|
|Martin Currie Emerging Markets Growth Fund - class FI||20.6%||42.5%||30.0%|
|MSCI Emerging Markets Index (U.S. dollars)||12.2%||35.2%||19.6%|
For an annualized comparison, the fund’s institutional shares had an average annual return of 12.9% for three years through Nov. 12, while the class FI shares had an average return of 12.5% and the index’s average return was 10.6%, according to FactSet.
Here’s a list of the top 10 holdings of the Martin Currie Emerging Markets Fund as of Sept. 30, with their current weighting in the iShares MSCI Emerging Markets ETF /zigman2/quotes/201454250/composite EEM +0.50% , which tracks the benchmark index:
|Company||Country||Ticker||Share of portfolio as of Sept. 30||Share in EEM as of Nov. 8|
|Samsung Electronics Co.||South Korea||/zigman2/quotes/209800866/delayed KR:005930||7.96%||3.80%|
|Taiwan Semiconductor Manufacturing Co. ADR||Taiwan||/zigman2/quotes/204359850/composite TSM||7.70%||4.34%|
|Tencent Holdings Ltd.||China||/zigman2/quotes/204605823/delayed HK:700||6.55%||4.25%|
|Alibaba Group Holding Ltd. ADR||China||/zigman2/quotes/201948298/composite BABA||6.43%||4.69%|
|Ping An Insurance Group Co. of China Class H||China||/zigman2/quotes/210315058/delayed HK:2318||3.28%||1.15%|
|Industrial and Commercial Bank of China Ltd. Class H||China||/zigman2/quotes/201401473/delayed HK:1398||2.98%||0.82%|
|OTP Bank Nyrt.||Hungary||HU:OTP||2.94%||0.18%|
|Titan Co.||India||/zigman2/quotes/202136892/delayed IN:500114||2.90%||0.09%|
|Lukoil PJSC||Russia||RU: LKOH||2.63%||0.65%|
|Credicorp Ltd.||Peru||/zigman2/quotes/202158631/composite BAP||2.56%||0.24%|
|Sources: Martin Currie, FactSet|
Aside from Taiwan Semiconductor /zigman2/quotes/204359850/composite TSM +0.94% , Alibaba /zigman2/quotes/201948298/composite BABA +0.78% and Credicorp /zigman2/quotes/202158631/composite BAP -1.79% , the fund’s top holdings are stocks bought in local markets. For some of these, American depositary receipts are available:
Tencent Holdings ADR /zigman2/quotes/207908563/composite TCEHY +0.39%
Ping An Insurance Group Co. of China ADR /zigman2/quotes/202212125/composite PNGAY +0.58%
Industrial and Commerce Bank of China ADR /zigman2/quotes/202401350/composite IDCBY -3.21%
OTP Bank Nyrt OTPIY 0.00%
Lukoil PJSC ADR /zigman2/quotes/200301672/composite LUKOY +0.80%
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