Artemis SmartGARP Global Emerging Markets Equity Fund update

Raheel Altaf and Peter Saacke, managers of the Artemis SmartGARP Global Emerging Markets Equity Fund, report on the fund over the quarter to 30 June 2024.

Raheel Altaf

Source for all information: Artemis as at 30 June 2024, unless otherwise stated. 

The fund’s objective is to grow capital over a five-year period. The fund returned 9.1%, ahead of its benchmark the MSCI Emerging Markets NR GBP index1, which returned 4.9%. It was also ahead of its second benchmark, the IA’s Global Emerging Markets NR2 sector, where the average return was 4.1%

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

Performance – upturn in emerging markets on improving sentiment

Optimism around the lowering of interest rates and encouraging economic data from around the world supported share prices. Other positives included reforms in Korea and China, which aim to emulate Japan’s success at improving corporate governance. Companies manufacturing component parts for artificial intelligence (AI) also surged. Any improved sentiment is supportive for emerging markets.

Against this backdrop, technology and cyclical (economically sensitive) areas of the market led, while traditional ‘defensive’ sectors, such as healthcare and consumer staples, lagged.

Attribution – favourable tailwinds for our holdings

A diverse group of companies contributed to performance in the quarter, reflecting several positive developments across our holdings. Top contributors in the second quarter were Amara Raja (batteries), Cosco Shipping (transportation), Indus Towers (telecoms), CNOOC (energy) and Coca Cola Icecek (beverages). AI-themed stocks in Taiwan also performed well – our holdings in Wiwynn and Hon Hai featured amongst top contributors. On the negative side, weaker sentiment towards Brazil was a drag. Softer commodity prices weighed on related shares, including Chinese jeweller Lao Feng Xiang and Brazilian steel company Usiminas. Despite the setbacks, the fund delivered strong outperformance in the quarter.

Activity –adding to industrials

As manufacturing data continues to signal a broad recovery in Asia, the corporate newsflow for more economically sensitive areas of the market has also been improving. The main winners are commodity-related companies and beneficiaries of the AI theme.

We added some shares in these areas during the quarter, funding the purchases with sales of companies with deteriorating fundamentals.

Additions

  • China recovery – Tencent (multimedia and online services), Jiangxi Copper, Shenzhen New Energy (renewables), Cosco Shipping
  • Pharmaceuticals – Richter (Hungary, drug producer) 

Reductions

China rotation – Alibaba (e-commerce), PICC (insurance), Netease (online services) and Lao Feng Xiang (Chinese jeweller)

The result of these changes is that the fund continues to offer an attractive combination of extremely low valuations and attractive growth prospects. We remain biased towards China, Brazil and Korea with less in India, Taiwan and Saudi Arabia. At the sector level, we favour financials, consumer discretionary and industrials, with less in materials, technology and consumer staples (essential goods).

We remain positioned for a rotation into value stocks

The fund continues to offer a range of holdings that we believe have low valuations and attractive growth prospects.

We think our discipline around valuations is likely to be a rewarding strategy as we progress through 2024 and for the years ahead. Typically, ‘value’ stocks – companies whose share prices appear modest relative to their underlying profits - tend to have distressed balance sheets and volatile profits. This doesn’t appear to be the case for our holdings, which are also showing favourable quality and growth characteristics.

Emerging markets – pessimism well reflected in prices; cyclical upturn presents opportunity

There are many reasons for poor sentiment towards emerging markets today. The Chinese economic recovery has so far been underwhelming. Geopolitics creates uncertainty – election results in India, Mexico and South Africa could signal changes to policy. The US election is also looming.

On the positive side, potential for 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 economic reforms and growth initiatives have the potential to surprise investors. More broadly, emerging market stocks are trading on multi-decade valuation lows against developed markets across a range of measures.

When times are bad, investors’ aversion to risk can lead to indiscriminate selling. We believe this creates opportunities for disciplined investors like ourselves. Our process has been designed to look for companies where the fundamentals are signalling good news, yet share prices are not reflecting this optimism.

Our focus on fundamentals continues

We continue to believe that a focus on companies’ fundamentals, such as earnings and cash flow growth, combined with a strict discipline around valuations, offers the best way to navigate markets. Despite the last three years having been very disappointing for stockmarket indices (and funds) that track the overall fortunes of emerging markets, , there has been no shortage of emerging-market companies that have performed well. The compelling financial characteristics of our fund give us confidence that regardless of the direction markets take, we can continue to deliver good outcomes.

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. 

 

Annualised performance 12 months to 30 June  2024 2023 2022 2021 2020
Artemis SmartGARP Global Emerging Markets Equity Fund 24.3% 8.1% -6.3% 28.8% -10.9%
MSCI EM (Emerging Markets) NR GBP 13.2% -2.8% -15.0% 26.0% -0.5%
IA Global Emerging Markets NR 11.5% 0.5% -15.9% 28.5% -2.4%
*Past performance is not a guide to the future. Source: Artemis/ Lipper Limited, class I accumulation GBP units to 30 June 2024. 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.

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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