Quarterly Commentaries

Emerging Markets Equity Strategy 4Q 2017


Key Takeaways

  • In the fourth quarter of 2017 and for the full year, our Emerging Markets Equity Strategy delivered strong absolute returns of 5.80% and 35.94%, respectively. Solid operating performance from our quality growth companies supported these strong returns. But, given that our companies are less cyclical in nature, the portfolio lagged the strong performance of the MSCI Emerging Markets Index in 2017.
  • The MSCI Emerging Markets benchmark had its strongest performance since its post-crash bounce in 2009, and it outperformed each of the MSCI ACWI, S&P 500 and MSCI Europe indices by more than 10% for the year. Performance was led by the large Asian markets, China, South Korea and India, along with South Africa, which bounced on a potential political leadership change.
  • Performance of our portfolio in absolute terms was led primarily by our Chinese Information Technology holdings alongside our broadly diversified Consumer Staples companies. The sector leading our relative underperformance in the fourth quarter was Financials, where we had positive returns, but lagged the benchmark as smaller and more cyclical companies benefited from a buoyant outlook.
  • Following a long market rally, it is important to remind our partners why we are comfortable with underperformance in strong markets. Quality growth performance across market conditions is like a boat built to withstand rough seas. A stable vessel will not accelerate, or go as quickly, as a speed boat when conditions are calm. But when the seas are rough, it can continue to plough through and deliver cargo over long distances. Our approach is based on consistently growing the underlying value of the portfolio through a range of investment conditions and on the back of companies that produce robust and less cyclical underlying earnings. We believe the outperformance that our portfolios typically demonstrate in difficult markets leaves us at a higher starting point when markets eventually recover.
  • Importantly, we remain confident that our companies are well placed to take advantage of the vast secular growth opportunities across emerging markets, while providing the stability needed to see through the next downturn. With tightening around the corner and more than two decades of track record to reflect on, our investing goals remain steadfast: compound capital at attractive rates of return and preserve capital during difficult market environments.

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