Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
the case for emerging markets
Senior Equity Analyst
Sep 26, 2016
Capital has flowed into emerging markets over the past two decades as institutional and retail investors have flocked to the growth story in search of investment returns and yield. Many of these countries are forecast to grow significantly over the decades to come. According to the International Monetary Fund (IMF), over the long term, developing economies are set to incrementally increase their share of global GDP on a purchasing power parity (PPP) basis.
Since the global financial crisis, however, emerging economies have started to experience slower growth, suffering a net outflow of capital over the past 18 months for the first time since the 1980s. It’s unsurprising that the end of quantitative easing in the US and subsequent strength of the US dollar along with the US Fed raising interest rates has led to the flight of capital out of emerging markets, with both retail and institutional investors opting to reduce their direct exposure.
Where does this leave emerging markets in terms of an allocation within offshore portfolios? At Sanlam Private Wealth (SPW), our fundamental research process for global equities is driven purely by bottom-up stock selection, yet we acknowledge that emerging markets enjoy better demographics and more attractive valuations than many developed markets. The water is muddied by the fact that many global multinational businesses already have significant exposure to many of these regions.
The question should be one of determining intrinsic value, and assessing this against the market price. It is then crucial to have the conviction and discipline to take advantage of any price dislocations, should they arise. We ask ourselves whether an individual company’s stock price is attractive enough to justify the greater level of risk in deploying our clients’ capital into a direct emerging market company.
Cast your eyes back towards the start of the year, when there was much negative investor sentiment towards emerging markets. At that time, we started to see opportunities arise in direct emerging market-listed stocks and subsequently started to increase our direct exposure by initiating positions in Hengan (consumer goods), NetEase (technology) and more recently Baidu (technology).
From our perspective the most important point is not where a stock is listed, but the breakdown of where it generates its revenue from. Our style bias towards owning quality businesses with high free cash flow conversion ratios, attractive operating margins and high returns on capital at reasonable valuations has tended to lead us away from direct emerging market investments.
But even though we have only modest direct emerging market exposure, on a revenue look-through basis, we have over 20% exposure through the multinational companies we hold in the Sanlam Private Wealth Global High Quality Fund. In summary, we’ve been gradually increasing both our direct and indirect exposure to emerging markets so far this year as we seek the most attractive risk and reward trade-off in deploying our clients’ capital.
The Sanlam Private Wealth Global High Quality Fund aims to achieve long-term outperformance primarily through taking high-conviction positions in well-managed, high-quality businesses that are attractively valued. The process views risk at both a portfolio and security level within the framework of understanding the risk-reward trade-off of position sizes.
This unconstrained fund invests in companies with strong market positions and solid balance sheets, generating attractive levels of free cash flow that should prove appealing for long-term investment opportunities.
The fund has increased 9.6% year-to-date, outperforming the MSCI World Index, which returned 5.0% – both in US dollar terms. The Sanlam Private Wealth Global High Quality Fund remains ranked in the top quartile since inception having returned 21.3% compared to the MSCI World Index, which rose 8.0% over the same time period.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
are they a good investment?
The great lockdown:
one year on
Head of Equities
IHG: focus on
quality pays off
Sanlam Active UK Fund
BUDGET 2021: THE RIGHT INTENT,
BUT RISKS ABOUND
Investment Economist at Sanlam Investments
INVESTING IN 2021:
WHAT TO EXPECT
Sanlam Private Wealth
MINING: IS THE
THROUGH THE HYPE
Head of Equities
Jack is back – business
as usual for Alibaba?
Global Equity Analyst, Sanlam UK
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.