Quarterly Commentaries

Emerging Markets Equity Strategy 1Q 2018

04.16.2018

Key Takeaways

 
  • In the first quarter, the MSCI EM Index returned a mild 1.42%, masking a volatile period with performance ranging from a high of 9.89% to a low of -1.35%. The Vontobel Emerging Markets Equity strategy return of 0.28% lagged the market, although consistent with the quality growth portfolio, it traded in a tighter range.
  • Our consumer staples and IT holdings were the largest contributors to relative returns, although performance was offset by weakness in our telecom holdings. Also detracting from relative returns was our underweight to oil price sensitive Russia, Brazilian banks, and energy companies which rallied over the quarter.
  • GDP growth in the large EM economies continues to print, but cracks are starting to appear around the edges that we believe could lead to increased differentiation of fundamentals by the markets:
    • Oil prices rose sharply over 12 months, lifting oil export markets but the impact on consumers has not registered.
    • U.S.-China trade conflict adds considerable uncertainty for Chinese manufacturers and supply chain.
    • China's move from one-party to one-man rule we see as a near-term economic positive, but a long-term risk.
    • U.S. rising rates are likely to spread to Europe, Japan and add pressure across some emerging markets.
  • The negotiations to rebalance trade flows between China and the U.S. have introduced uncertainty for companies with export operations in China. We have little direct exposure to this risk within the portfolio. We think both sides realize a pragmatic deal is the best outcome - but change brings unpredictability for companies.
  • We think a dose of skepticism returning to the markets is a good thing. We remain invested in quality growth companies despite the temptations of the cyclical Siren song. We see significant opportunities across the EM and believe that investors in stable growth companies who hold their investments through unpredictable cycles can benefit from the effects of compounding over the long term.

Trailing Returns: Emerging Markets Equity Composite(As of 03.31.2018)

Calendar Year Returns

Source: NorthernTrust
All results portrayed are expressed in U.S. dollars. Periods under one year are not annualized.
Past performance is not necessarily indicative of future results. For full disclosure and for further information regarding comparison to an index, see the Disclaimer and Performance Disclosure.

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