Performance Review 2008
Nick Price: "The EMEA region was not immune to the ferocious pullback witnessed in 2008 as risk aversion heightened amid the deteriorating global demand outlook and deepening liquidity crisis. While economists spoke of ‘de-coupling’ before the onset of the financial crisis, in reality the region moved in-line with developed markets with the exception of Russia which fared worse in the correction in relative terms. While absolute performance in 2008 was very painful, relative returns were encouraging. Holdings in selected consumer staples and retail stocks proved relatively resilient to the fall in global equity markets with positions in defensive ´safe-havens´ such as Shoprite, the South African based retailer and British American Tobacco notable contributors. Strong stock selection and an overweight in the materials sector benefited and avoiding some of the major underperformers in Russia such as fertilizer manufacturer Uralkali and metals producer Norilsk Nickel also proved rewarding."
Performance Review 2009
Nick Price: "From the market lows in March, EMEA equities staged a huge comeback in a rally that ultimately lasted for five consecutive quarters. 2009 was characterised by significant divergences between individual markets within the region, both in the downturn and in the recovery. It was the fund’s ability to capitalise on these divergences as well as to exploit stock picking opportunities elsewhere that helped drive relative performance. I avoided Eastern Europe almost entirely over the period (due to concerns of a fundamental currency mismatch in corporate and consumer borrowing) choosing instead to hold overweight positions Russia and South Africa as well as UK listed companies with emerging market operations. Turkish commercial bank Turkiye Vaklifar, low-cost steel producer Mechel and UK-listed Aspen Pharmacare were key contributors to performance in what was a stellar year for both the fund and EMEA equities as a whole."
Performance Review 2010 - Year-to-Date
Nick Price: "Following five consecutive quarters of positive performance, a broad-based sell-off in Emerging Market equities meant returns are now negative year-to-date. Eastern European markets suffered as investors were discouraged by high levels of public debt in Hungary and Poland and fears of contagion from the European sovereign debt crisis while declining commodities prices hurt Russian exporters. On a relative basis, the fund outperformed its benchmark. The long held fund underweight to Central Eastern European companies proved rewarding as financials Hungarian OTP Bank and Polish lenders Powszechna Kasa and Bank Polska slid amid uncertainty in peripheral Europe. Exposure to South African retailers and overweight positions in Russian regional telecom companies Vimpelcom, JSFC Sistema and Sibirtelecom also added to relative gains."
Performance since June 11th, 2007
Nick Price: "The cumulative return of the fund in 3 years since inception is evidence of the huge relative opportunity that the EMEA region has to offer to investors. The fund has significantly outperformed its benchmark since launch, which in turn has outperformed developed market indices such as the MSCI World and MSCI Europe. The fund has generated strong positive absolute returns and relative outperformance despite EMEA equities being in negative territory over the review period. Stock selection in materials, financials and consumer sectors led the relative gains. Exposure to low-cost Russian steel producers Mechel and Severstal, the overweight in Turkish bank Turkiye Garanti and selected mining stocks Aquarius Platinum and African Rainbow Minerals have been among the top contributors. Against a backdrop of range bound oil prices and a recovery in material prices to pre-crisis levels, the EMEA region held up well during the downturn, while the long term growth drivers of rising prosperity and domestic consumption continue to provide a good hunting ground for stock-pickers and great potential for investors."
Investment Process and Strategy – How does the Fund Manager Invest?
Nick Price: "The fund is a value biased, bottom up portfolio of typically 50 to 80 holdings, focussing on liquidity ranging across the market cap spectrum from a minimum of $1-2 billion. Typically, companies within the portfolio will have the following characteristics: dominant franchises with a proven track record; high return on equity; a sustainable competitive advantage; strong free cash flow generation; high dividend yields; low price to earnings multiples and an average market cap of $18 billion. In terms of the current investment strategy, I am finding a number of attractive opportunities in companies set to benefit from domestic penetration growth across the entire spectrum of the market. Alongside benign demographics, emerging markets are experiencing evolutionary changes in domestic demand, which will support economic expansion. In China and Brazil, stronger private consumption and investment is expected to play a leading role in this transformation. Many developing countries offer lower debt to GDP ratios; have more robust financial systems and higher foreign currency reserves compared to developed markets."
Investment Outlook
Nick Price: "Regardless of any short-term volatility in equity markets this year, the transformation of emerging markets will continue. Indeed, over the long term, the secular trends across the region remain positive. The developing world´s young population, unrivalled commodity exposure, rising productivity growth from its low cost labour force and, in aggregate, the opportunity to invest in stocks at reasonable prices present attractive long term, fundamentally positive prospects for the countries’ equity markets."
