Mark Mobius has run the £1.6bn Templeton Emerging Markets Investment Trust (TEMIT) for the past 26 years but it was announced today that he is to step back as its lead manager.
Carlos Hardenberg, senior vice president and managing director at Templeton Emerging Markets Group, has been named as the trust’s new lead manager. He will work alongside Mobius, who will remain on as a portfolio manager.
Mobius has headed up the portfolio since its launch in 1989. Our data on the trust only goes back to December 2000, but as the graph below shows it has comfortably outperformed its MSCI Emerging Markets benchmark over this time with a 456.60 per cent gain.
Performance of trust vs index since Dec 2000
Source: FE Analytics
However, recent years have seen its performance dip. While it has beaten the benchmark by around 50 percentage points over 10 years, Templeton Emerging Markets lags the index and its average peer in the IT Global Emerging Markets Equities over one, three and five years.
Much of this underperformance is down to the fund’s value investing approach, which has been broadly out of favour over recent years.
The trust’s most recent annual report said: “For the five years ended 31 March 2015, the MSCI Emerging Markets index posted a 13.3 per cent total return. On the London Stock Exchange, TEMIT’s share price produced a total return of 1.2 per cent for the same period.”
“The investment manager has a value investing style and, while recognising that it is not TEMIT’s benchmark index, it is worth noting that the MSCI Emerging Markets Value index produced a total return of 4.9 per cent over the five-year period, compared with TEMIT’s net asset value total return of 7.9 per cent.”
While the appointment of a new manager can prompt some investors to sell out, it is worth pointing out that Mobius will remain an influence on the portfolio and investors wanting exposure to his value style need not sell because of the changes.
However, for those who are considering looking elsewhere for emerging market exposure, the article below will look at four highly rated portfolios from the closed-ended, open-ended and passive spaces.
Investors wanting to retain a value style and the closed-ended structure could look at Genesis Emerging Market, which has been managed by Andrew Elder since January 2004.
A note from Numis Securities said: “In our view, the jury is still out in relation to TEMIT. Mark Mobius used to be regarded as a star manager in the sector and the fund has an impressive long-term track record.”
“However, we believe that it may be worth considering Genesis Emerging Markets as an alternative – this fund is also managed through a bottom-up, value-oriented approach.”
Over Elder’s time on the fund it has posted a 20.04 per cent total return, which is better than TEMIT and the MSCI Emerging Markets index but below the average gain in the sector.
Performance of trusts vs sector and index over manager tenure
Source: FE Analytics
The trust, which has assets of £697.8m, seeks to invest in underpriced companies and holds them on a five-year time horizon. Its current top 10 includes the likes of Taiwan Semiconductor, Samsung Electronics, SABMiller and Anglo American.
In terms of geographic exposure, it has close to 55 per cent of the portfolio in Asia, with 19.3 per cent in the Middle East and Africa, 12.8 per cent in Europe and central Asia, and 11.8 per cent in Latin America.
Genesis Emerging Market is trading on a 9.08 per cent discount, which is higher than it one and three-year average. The trust has ongoing charges of 1.67 per cent and is not geared.
Fundsmith Emerging Equities Trust
Only one member of the IT Global Emerging Markets Equities sector is headed up by an FE Alpha Manager and that is Terry Smith’s Fundsmith Emerging Equities Trust (FEET).
The fund launched in June 2014 and over that time has fallen 3.90 per cent – which is a better result than TEMIT but is behind the sector and the index. However, Smith was running higher levels of cash in the months after launch as he searched for investment opportunities.
This will have held back returns but the manager is known for his long-term approach, which revolves around finding companies that will benefit from the increasing consumption in the developing world. The fund now has 49 holdings, with 78 per cent of net assets invested.
Performance of trusts vs sector and index since launch
Source: FE Analytics
Smith argues that FEET’s approach means it will look very different to the average emerging markets fund. The top 10 companies in the MSCI Emerging Markets index are from the banking, energy, technology and telecoms sectors, which the trust will never invest in because they are cyclical, rely on leverage to deliver an adequate return, are subject to rapid and unpredictable change and/or have returns controlled by governments.
The investment philosophy behind the trust is the same as the one for Smith’s top-performing Fundsmith Equity fund: investing in high-quality businesses; not overpaying for shares; holding for the long term; avoiding market timing; and paying careful attention to corporate governance.
Fundsmith Emerging Equities Trust does not have published ongoing charges, owing to its short history. It is trading on a 3.70 per cent premium and is not geared.
PFS Somerset Emerging Markets Dividend Growth
This five FE Crown-rated fund does not take a pure value approach to investing, but does play close attention to valuation as part of the process used at Somerset. FE Alpha Manager Edward Lam has run the open-ended fund since launch in March 2010 and has significantly outperformed its sector and benchmark with a 33.34 per cent return.
Performance of fund vs sector and index since launch
Source: FE Analytics
In addition, PFS Somerset Emerging Markets Dividend Growth is currently first quartile in the IA Global Emerging Markets sector over one, three and five years.
The fund has also outperformed TEMIT by a wide margin over this time, but it must be pointed out that the Somerset offering is not focused on value and has an income mandate, which will have aided performance over recent years.
The FE Research team, which has the fund on its FE Select 100 list, said: “This fund looks to pick companies listed in the developing world which are likely to maintain or grow their dividend.”
“The manager Edward Lam prioritises avoiding ‘value traps’. These are companies which have a high headline payout because they are cheap, but are likely to get cheaper because of weakness in their business or market.”
Top holdings in the fund include Hungary’s Otp Bank, China Mobile, India's Axis Bank, Samsung Electronics and Sanlam.
PFS Somerset Emerging Markets Dividend Growth has a 1.30 per cent clean ongoing charges figure (OCF) and yields 2.40 per cent.
Vanguard Emerging Markets Stock Index
Investors considering taking a passive exposure to emerging markets face a lack of products adopting the value approach favoured by Mobius and TEMIT. There is one exchange traded fund – iShares MSCI Emerging Markets Value Index – but this is domiciled in the US and is therefore difficult for UK investors to access.
Those who are unconcerned by style bias could look at those that simply track the various emerging market indices. There 17 passive emerging market equity funds rated by FE Research but only one has won the top FE Passive Fund Rating of five.
Since launch in June 2009, Vanguard Emerging Markets Stock Index has returned 53.28 per cent. As would be expected this is underperformance of the MSCI Emerging Markets index – but it is a better result than the average gain in the IA Global Emerging Markets sector.
Performance of fund vs sector and index since launch
Source: FE Analytics
Vanguard Emerging Markets Stock Index has a clean OCF of 0.27 per cent.
