This measured approach has insulated the portfolio somewhat, which has returned 9.84% on an annual basis for the 10 years ended April 30, from emerging markets volatility, according to Morningstar analyst William Samuel Rocco. In a report on the fund, he noted, “Although [the fund] has struggled to keep up in go-go rallies due to the managers’ price consciousness and quality orientation, it has generally held up well in downturns for the same reasons and it has often outperformed in moderate upswings. As a result, this fund boasts terrific long-term risk-adjusted returns.”
The kinds of high quality companies Johnson favors aren’t particularly cheap right now, and like their developed market counterparts, emerging market blue chips have risen to fairly high valuation levels during risk-wary times. Nonetheless, Johnson maintains it’s still possible to sift through the investment universe to find good, attractively valued, high-quality, growing companies.
“The perception is that emerging markets are a basket case that have gone through a difficult time,” Johnson says. “But there are a lot of solid, growing companies as well. Things are better at the company level than the country level.”
He cites Egypt’s CIB (Commercial International Bank) as one of those solid companies. Amid political upheaval, the bank, which was added to the fund in the first quarter of this year, has managed to become a leader in Egypt for its profitability, its number of customers, its market capitalization and its loans and deposit market share. Johnson says that with a new pro-business government regime in place, CIB could see an upturn in corporate borrowing.
Other new names added to the fund in the past few months are AirTac, a Taiwanese company that produces pneumatic factory automation equipment, primarily for mainland China, and Bancolombia, a leading Colombian bank. AirTac, the second-largest company of its kind in the world, sells most of its products in China and fits well with that country’s move from labor-intensive production and manufacturing to automation.
EM Contrarian: Headwinds Should Abate
June 1, 2015
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