Artemis SmartGARP Global Emerging Markets Equity Fund quarterly review, December 2023

Raheel Altaf and Peter Saacke, managers of the Artemis SmartGARP Global Emerging Markets Equity Fund, report on the fund over the quarter to 31 December 2023.

Raheel Altaf

Source for all information: Artemis as at 31 December 2023, unless otherwise stated. 

Fund objective 

The fund’s objective is to grow capital over a five-year period.

Performance

The fund returned 3.0%, slightly behind its benchmark the MSCI Emerging Markets NR GBP index1, which returned 3.3%. It was also behind its second benchmark, the IA’s Global Emerging Markets NR2 sector, where the average return was 3.5%.

For full five-year discrete performance, please see below. Please remember that past performance is not a guide to the future.

Performance – favourable tailwinds for our holdings

Emerging markets disappointed in 2023. Despite a rebound in sentiment in the last quarter, returns from emerging market shares were well behind those from developed markets. Against this challenging backdrop, our fund performed well, ending the year up 12.4% (in sterling terms) compared to the MSCI Emerging Markets NR GBP index, which rose 3.6%.

Banks and Asian industrials perform well

Performance in the quarter was broadly in line with the benchmark index. Banks made a strong contribution, PKO in Poland, Banco do Brasil in Brazil and JB Financial in Korea all featured among the top contributors. Elsewhere, signs of a recovery in Asia were supportive to Novatek Microelectronics, Wiwynn (data centres) and Kia Motors. These were offset by weakness in China, where Alibaba (online retail), PICC (insurance), Miniso Group (retail) and Foxconn (electronics) saw their share prices fall.

Activity – adding to very large companies (so-called ‘mega caps’) and to ‘cyclical’ (economically sensitive) companies

Signs of increasing demand for tech hardware encouraged us to add companies in this area.

Additions

  • ‘Mega caps’ – TSMC (semiconductors), Samsung, Tencent (multimedia) and NetEase (online games)
  • Cyclicals – Star Bulk Carriers (shipping), Hankook Tire (tires) and Copa (airlines)

Reductions - deteriorating outlook

  • Alibaba (online retail), Hello Group (social networks), PICC and Ping An (both Chinese insurers)
  • Food and beverages – ITC and Grupo Bimbo

The result of these changes is that the fund continues to offer an attractive combination of extremely low valuations and good growth prospects. We have large positions in China, Brazil and Korea and less in India, Taiwan and Saudi Arabia. In terms of sectors, we favour financials, consumer discretionary and industrials. We have less in areas including materials, media and entertainment and software and services.

Finding ‘value’ in the market

We continue to find ‘value’ (cheap shares with below-average valuations) in many areas of the market. The holdings in our fund offer an attractive combination of extremely low valuations and attractive growth prospects. We think this is likely to be a rewarding strategy in 2024 and in the years ahead.

Emerging market equities – cheap and unloved, but pessimism well reflected in prices

For much of 2023, Chinese equity markets suffered from weaker sentiment. China’s post-pandemic economic recovery has so far been underwhelming. On the positive side, the potential for economic stimulus measures and reasonable levels of interest rates offer support. Chinese stocks have struggled for over a decade and their share prices are well reflective of the risks highlighted. Positive catalysts such as reforms and growth initiatives have the potential to surprise investors.

Shares in emerging markets are much cheaper - relative to their earnings- than those in developed markets. Meanwhile, central banks in some emerging economies are already cutting interest rates, which should be supportive for their local equity markets

For several years surging share prices reduced investors’ focus on the details (‘fundamentals’) of individual companies. This created excessively high valuations in certain parts of the market. That process has gone into reverse and we think it has further to run. We see less risk in companies that trade on low valuations and so prefer to focus on this part of the market.

We continue to believe that a focus on companies’ ‘fundamentals’, such as profits and cashflows, combined with a strict discipline around valuations, offers the best way to navigate markets in the months ahead.

1MSCI EM (Emerging Markets) NR: A widely-used indicator of the performance of emerging markets stockmarkets, in which the fund invests. It acts as a ‘comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark. 
2IA Global Emerging Markets NR: A group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. It acts as a ‘comparator benchmark’ against which the fund’s performance can be compared. Management of the fund is not restricted by this benchmark. 

 

Discrete performance 12 months to 31 December 2023 2022 2021 2020 2019
Artemis SmartGARP Global Emerging Markets Equity Fund 12.3% -5.2% 15.8% -0.4% 14.0%
MSCI EM (Emerging Markets) NR GBP 3.6% -10.0% -1.6% 14.7% 13.9%
IA Global Emerging Markets NR 4.8% -11.6% 1.2% 13.9% 17.0%
*Past performance is not a guide to the future. Source: Artemis/ Lipper Limited, class I accumulation GBP units to 31 December 2023. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the fund. Returns may vary as a result of currency fluctuations if the investor's currency is different to that of the class. This class may have charges or a hedging approach different from those in the IA sector benchmark.

Market volatility risk

The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.

Currency risk

The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.

Concentration risk

The fund may have investments concentrated in a limited number of holdings. This can be more risky than holding a wider range of investments.

Charges from capital risk

The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.

Emerging markets risk

Compared to more established economies, investments in emerging markets may be subject to greater volatility due to differences in generally accepted accounting principles, less governed standards or from economic or political instability. Under certain market conditions assets may be difficult to sell.

China risk

The fund can invest in China A-shares (shares traded on Chinese stock exchanges in Renminbi). There is a risk that the fund may suffer difficulties or delays in enforcing its rights in these shares, including title and assurance of ownership.

THIS IS A MARKETING COMMUNICATION. BEFORE MAKING ANY FINAL INVESTMENT DECISIONS, REFER TO THE FUND PROSPECTUS, AVAILABLE IN ENGLISH, AND KIID/KID, AVAILABLE IN ENGLISH AND IN YOUR LOCAL LANGUAGE DEPENDING ON LOCAL COUNTRY REGISTRATION, FROM WWW.ARTEMISFUNDS.COM OR WWW.FUNDINFO.COM.

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Raheel Altaf

Manages:

‘Global emerging markets equity‘, 'Global equity' strategies

Raheel joined Artemis in 2014 and has managed Artemis‘ ‘global emerging markets equity‘ and ‘global equity’ strategies since launch in April 2015 and since April 2022, respectively.

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