Emerging Markets Equity Strategy 1Q 2019


Key Takeaways

  • After a treacherous fourth quarter, emerging markets (EM) had a strong start to the year. EM equities reacted positively to the prospect that the U.S. Federal Reserve’s pause in interest rate increases would relieve pressure on dollar-denominated debt and expectations that capital would continue to flow into the developing world.
  • The MSCI Emerging Markets Index rose 9.92% over the quarter, with every sector of the Index generating positive returns, although momentum faded during the latter stages of the period. Our Emerging Markets Equity strategy generated double-digit returns, outperforming the MSCI EM Index.
  • Consumer staples had the most significant positive impact on attribution, led by Chinese alcoholic beverage company Wuliangye Yibin. Our investments in the consumer discretionary sector also favorably impacted our relative performance. The energy sector was the most significant detractor from attribution, driven by our single energy holding, Ultrapar Participacoes, and our underweight to the sector. Stock selection in the information technology sector also dragged on relative returns.
  • At times, the market focuses on a single variable. Over the last few months, that variable has been the Fed’s intentions. Yet a host of other significant risks remain from political headwinds to structural risks lingering below the surface. Rising populism in many countries is posing risks to the global trade regime, which in turn has implications for some companies’ profit margins.
  • As quality growth investors, we differentiate between growth driven by secular and cyclical forces in our portfolio companies. Even if the cycle turns down, we see opportunities for structural growth to drive earnings at many of our holdings. If we get the structural growth story correct, that should help with downside protection. In tough economic times, this protection is a hallmark of our investment style and a compass for portfolio construction.

Trailing Returns: Emerging Markets Equity Composite(As of 03.31.2019)

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.