Artemis SmartGARP Global Emerging Markets Equity Fund update

Source for all information: Artemis as at 31 March 2025, unless otherwise stated. 

Fund objective 

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

Performance

The fund returned 1.3% in the quarter, compared with -0.1% from its first benchmark, the MSCI Emerging Markets NR GBP index¹. It was also ahead of its second benchmark, the IA’s Global Emerging Markets NR² sector, where the average return was -1.4%.

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

Market review

Despite external risks increasing because of the US’s trade policies around tariffs (a tax on imports, see the Outlook section), emerging markets (less economically developed countries) outperformed developed markets (more economically developed countries) by a reasonable margin and the US by even more. Emerging markets are often used by investors as an alternative source of returns to developed markets, but have disappointed in this role over the past decade. However, that could all be changing as the US stockmarket faces challenges caused by government policy, while the dollar is also weaker.

In contrast, China appears to be on the verge of a recovery, as indicated by a rise in retail sales³ and manufacturing activity⁴. Property prices are stabilising as well⁵, suggesting that measures taken to stimulate the economy are making an impact. Taken together, we believe Chinese shares could soon deliver impressive returns.

Rather than focusing on where stockmarkets are going, we take an unemotional approach and look at the things that other investors might have missed. There remains much to be excited about. Emerging markets' low valuations offer potential upside, particularly when sentiment changes. We believe there are opportunities in both growth (companies growing faster than the stockmarket) and income (companies that return a portion of their profits to shareholders via dividends and other methods) shares.

Positives and negatives

Historically, a weaker US dollar has proved to be positive for emerging markets, with Latin American countries in particular doing well. Our holdings in financial companies Bancolombia, Banco do Brasil and Brazilian insurer Porto Seguro therefore all benefited from the recent fall in the value of the US currency.

We have an overweight (higher-than-average position compared with the underlying benchmark) position in China⁶. Although we have no particular edge over other fund managers when it comes to predicting what will happen in stockmarkets, we are convinced that the potential investment rewards to be made from some companies in China could be among the best that can be found in the world. We feel that the investment choices we made in China have more than compensated for the risks we have taken in the last few years, with retailers Alibaba and JD.com, automobile manufacturer Geely and aluminium producer China Hongqiao among the fund’s top contributors in the quarter.

Our performance was also helped by the fund having an underweight (lower-than-average position compared with the underlying benchmark) in companies involved in the manufacture of semiconductors (a key component of electrical products) and having an overweight in financial companies and consumer-related businesses. However, to some extent this positive contribution was offset by poor performance from holdings such as IT infrastructure provider Wiwynn, electronics manufacturer Hon Hai and footwear company Yue Yuen.

Activity

Over the last few months, we have been adding to our positions in consumer-related companies in China after investor pessimism had in our view reached extreme levels. We felt the difference between share prices and the financial performance of the underlying businesses had become too great.

One example of this inconsistency can be seen in Chinese electric vehicle manufacturer BYD, which we started a position in at the start of the year. It manufactures more electric vehicles and spends more on research and development than Tesla while generating a similar amount of revenue. However, BYD’s shares trade at a fraction of the price of its US competitor. While Tesla could be regarded as more than just a car company, we would argue that BYD could be seen in the same way in future. Also, in recent months the company has announced an ultra-fast battery charger that takes roughly the same amount of time to power a car as filling it up with petrol7.

We added to other Chinese companies such as PICC (People’s Insurance Company of China), Western Mining and JD.com. Elsewhere we increased our level of investment in Indian companies by buying more shares in Chambal Fertilisers and software business Redington. This buying activity was funded by our sales of Hon Hai and Genius Electronic and by reducing our number of shares in Emirates NBD bank. We also reduced our positions in DB Insurance and Hana Financial after their prospects declined.

The result of these changes is that, in our view, the fund’s holdings continue to offer an attractive combination of low valuations and good growth prospects. As well as our higher-than-average position in China, we also have overweights in Brazil, Korea and the United Arab Emirates. In contrast, we have underweights in India, Taiwan and Saudi Arabia.

In terms of our sector exposure, financial, consumer discretionary (non-essential but desirable goods and services) and industrial companies (those responsible for the manufacturing and production of goods) are the fund’s largest overweights, while companies focused on technology and consumer staples (essential goods) are the largest underweights.

Outlook

Just after the end of the quarter, President Donald Trump announced heavy tariffs on the US’s trading partners. These are likely to have a negative impact on economic growth and consumer confidence, which has caused some investors to pull away from the US. We think that the continued uncertainty over tariffs could erode investor confidence even further.

China has chosen to retaliate by enacting reciprocal tariffs against the US and the worry is this could turn into a ‘tit for tat’ battle that sends the global economy into a recession. However, we are encouraged by prospects of further measures to stimulate growth in China, which are likely to have a greater impact on its economy and those of other Asian countries than the tariffs. It also stands to reason that self-sufficient countries with stronger domestic consumption (where a significant proportion of demand comes from internal customers rather than those in other countries) will be more protected from trade worries, so to add a margin of safety we have a preference for the likes of China, Brazil and Korea.

While logic suggests adding to investments during downturns, human instinct typically pushes in the opposite direction – pulling back after falls and piling in after stockmarket rallies. Though academics have long advised against this behaviour, it is hard to override human nature. Our fund remains attractively valued relative to emerging markets, which are in turn reasonably valued compared with global stockmarkets.

We believe it is sensible to invest in undervalued assets, increase your position (if you can) after stockmarkets fall heavily, then let profits and dividends do their work. Tariffs may weigh on trade, but inflation is benign8 and we believe interest rates are likely to remain stable. The main risk is profits faltering, but our in-house SmartGARP (Smart Growth at a Reasonable Price) program has already tilted us towards more resilient holdings on relatively low valuations. So, despite all the volatility, the positioning of our fund looks well judged, in our view.