WHAT DO YOU LOOK FOR IN EMERGING MARKETS?
Published 27 May, 2021
An emerging market equity fund that we like is T Rowe Price Emerging Markets Equity, which we view as a long-term, core holding. The fund provides exposure to quality, well-run businesses that exhibit strong growth characteristics, and it pays attention to the valuation it is having to pay for such companies to ensure the portfolio trades at a reasonable multiple.
The level of dedicated human resource the fund has at its disposal, at both a management and analytical level, is impressive and hard to source elsewhere. In our view, this is very important in any emerging market strategy, given the sheer size of the universe.
We are cognisant of the recent tweak to the management team but are comforted by the steps T Rowe Price has taken to address this, which should ensure that the strong, long-term performance record versus the MSCI Emerging Markets Index is maintained.
The emerging market universe encompasses nearly 30 countries and thousands of individual stocks, requiring an experienced team that has strength in depth to be able to fully research the plethora of potential investment opportunities on offer.
A key element to this research effort should be placing close scrutiny on assessing corporate governance, as in our view many EM companies simply do not have the robust approach to governance that is more typically seen in developed markets. Failure to fully recognise this risk will inevitably affect performance over a medium to long-term period.
Lastly, we prefer a strategy that blends bottom-up and top-down considerations in its investment process, because many emerging market economies are sensitive to prevailing economic conditions globally, rendering a bottom-up-only approach suboptimal, in our view.
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