After a strong period for emerging market equities, which areas of the asset class should investors be focusing on in 2018 and beyond?

Transcription

1 UNCONSTRAINED EQUITY INVESTING IN EMERGING MARKETS After a strong period for emerging market equities, which areas of the asset class should investors be focusing on in 2018 and beyond? Ross Teverson Head of Strategy, Emerging Markets Fund Management Director November 2017 ON THE PLANET TO PERFORM

2 PE ratio GEM subsequent 5-year returns Emerging markets still stand out on valuations Relative to Developed Markets* Buy Low, Sell High** MSCI World 18.0% MSCI EM 13.9% 200% 150% 156% Current PB R²= % % 0% -50% 51% 44% 25% 18% 13% 8% 0% 0% 0% -23% -15% -25% -14% 2 0 Dec-06 Mar-09 May-11 Jul-13 Aug-15 Oct-17 GEM Price to Book Ratio The views expressed are those of the presenter at the time of preparation and may change in the future. *Source: Jupiter, October **Source: BofA Merrill Lynch Asia Pac Quantitative Strategy, MSCI, FactSet, ExShare. Chart pu blished in BofA Merrill Lynch Quant Strategy, October

3 Change in debt-to-gdp %, Emerging markets typically exhibit lower levels of indebtedness Emerging markets Increased Leverage Singapore 100 Developed markets Greece China Spain France Japan Malaysia Italy South Korea Australia Mexico Brazil Austria United Kingdom Russia South Africa Indonesia Vietnam United States Nigeria Philippines Germany India Romania Saudi Arabia Egypt Decreased Leverage Debt-to-GDP %, 2014 Note: Debt owed by households, nonfinancial corporations and governments. Source: McKinsey Global Institute, Haver Analytics, national sources. 2

4 Potential for ongoing cyclical recovery in key EM economies DM Inflation and Interest Rates Jan-15 Jan-16 Jan-17 EU Inflation US Inflation EU Central Bank Rate US Central Bank Rate EM Inflation and Interest Rates Russia Inflation Brazil Inflation 2 Russia Central Bank Rate 0 Brazil Central Bank Rate Jan-15 Jan-16 Jan-17 Source: Bloomberg, October

5 But beware of the Emerging Markets Index Look beyond the obvious polarisation The views expressed are those of the presenter at the time of preparation and may change in the future. Any stock examples are used for illustrative purposes only and should not be viewed as investment advice. ETF Exposures = Exc hanged Traded Fund Exposures. Source: Jupiter and Bloomberg,

6 UNCONSTRAINED Jupiter Global Emerging Markets Equity Unconstrained Fund Objective To generate capital growth over the long term Philosophy Change-Based Investing: Underappreciated Change Style Bottom-Up Unconstrained Benchmark Agnostic Style Agnostic holdings* Aims to be fully Invested No derivatives** No hedging No gearing *Expected long-term range. **The fund has permission to enter into derivative transactions but only for the purposes of efficient management of the port folio and not for investment purposes. 5

7 Hong Kong & China South Korea Taiwan India Mexico Russia South Africa Brazil Indonesia Turkey Colombia United Kingdom Philippines United Arab Emirates Malaysia Nigeria Kenya Georgia Country allocation Diversification across emerging markets and under-researched frontier markets 35% 30% 25% 20% 15% Frontier Markets 10% 5% 0% Source: Jupiter / Morningstar Direct, data is holdings based, latest available on Fund: Jupiter Global Emerging Markets Equity Unconstrained SICAV. Benchmark: MSCI Emerging Markets Index. Core peer group: Top 5 funds in Morningstar Global Emerging Markets Equity sector as at Note: only showing the countries where the fund has any exposure. 6

8 Why frontier markets? Low correlation with Emerging Markets 1,0 Chronically under-researched , ,6 0, , ,0 BRICs Romania Pakistan Nigeria Kenya 0 US Nigeria Source: Bloomberg, over 2 years ( ). BRICs is composite of MSCI country indices for Brazil, Russia, India and China. All remaining data points are standalone MSCI indices). Source: Average research reports per month. Mark Mobius, Passport to Profits. 7

9 A genuinely all-cap fund Market cap allocation Fund* Peer Group** MSCI Emerging Markets Jupiter Global Emerging Markets Equity Unconstrained Fund Small 38% Mid 30% Large 29% Cash 3% *Source: Jupiter Large: >$10bn, Mid: $2bn 10bn, Small: >2.0bn. **Source: Morningstar Giant-cap stocks are defined as those that account for the top 40% of the capitalisation of eac h style zone; large-cap stocks represent the next 30%; mid-cap stocks represent the next 20%; and small-cap stocks represent the next 7%. Peer group: Top 5 funds in Morningstar Global Emerging Markets Equity sector as at Fund is in the FE Equity Emerging Markets sector. 8

10 Average air transport passengers per capita Opportunities to profit from structural change Air Travel 2,5 2,0 Emerging markets Developed markets United Kingdom 1,5 South Korea France 1,0 Thailand Chile 0,5 0,0 Vietnam Brazil Argentina Indonesia China Philippines India GDP per capita (current US$) The views expressed are those of the presenter at the time of preparation and may change in the future. Source: International Civil Aviation Organization, Civil Aviation Statistics of the World and ICAO staff estimates. World Bank national accounts data, and OECD National Accounts data files. 9

11 India 0.08 flights per year Stock examples are for illustrative purposes only and are not a recommendation to buy or sell. Source: Centre for Aviation Report Indicates average number of flights per year, per person. 10

12 Share of adult population with mortgage loans Nigeria Indonesia Kenya Peru Brazil Turkey Russia Egypt Pakistan Vietnam India Mexico Chile South Africa China Thailand Italy Hungary S. Arabia Japan Germany Korea, Rep. France UK US Netherlands Sweden Opportunities to profit from structural change Mortgage penetration 60% 50% 40% 30% 20% 10% 0% The views expressed are those of the presenter at the time of preparation and may change in the future. Source: World Bank surveys, data from Global Financial Inclusion Index. 11

13 Nigeria 18 median age Stock examples are for illustrative purposes only and are not a recommendation to buy or sell. Source: CIA World Factbook Indicates the age distribution (median) of the country s entire population. 12

14 Company change Bizlink Tesla s wire harnesses The investment case Change: Bizlink are the main supplier of wire harnesses to Tesla. With strong global sales growth in electric vehicles (EV), we believe Bizlink s sales to Tesla alone have the potential to increase by 9x over 5 years. Price: Minimal potential reflected in the price, as there is limited international sell-side coverage on Bizlink, despite Tesla s popularity. Catalyst: Quarterly results. News of new-order wins. Performance 310,0 260,0 210,0 160,0 Point of purchase. Stock traded 3.2x P/B and 17x P/E 110,0 Aug-15 Nov-15 Feb-16 Apr-16 Jul-16 Sep-16 Dec-16 Mar-17 May-17 Aug-17 Oct-17 13

15 Key Fund characteristics Jupiter Global Emerging Markets Equity Unconstrained Fund 1% Minimum position* 5% Maximum position* 5% Maximum cash* 20% Maximum Frontier* 93% Active share 50 Holdings ~40% 100% $2.3bn 96% 68% 0.94 Turnover Per Annum* Stock Selection Median Market Cap Liquidated in 3 days** Mid-and-small caps Beta** Source: Jupiter, *Expected long-term ranges. All metrics fund manager limits and not fund limits. ** Risk figures as at

16 Manager s track record 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Luxembourg-domiciled SICAV / Jupiter Global Emerging Markets Equity Unconstrained L Acc USD MSCI Emerging Markets -30% Oct-12 May-13 Dec-13 Jun-14 Jan-15 Aug-15 Feb-16 Sep-16 Apr-17 Oct October 2012 to 30 June 2014 Luxembourg-domiciled SICAV 26.9% 09 Mar 2015 to 31 October 2017 Jupiter Global Emerging Markets Equity Unconstrained L Acc USD 26.8% MSCI Emerging Markets 8.0% MSCI Emerging Markets USD 25.7% Past performance is no indication of current or future performance. Performance data does not take into account commissions a nd costs incurred on the issue and redemption of shares. Source: Morningstar Direct/FE, gross income reinvested, net of fees, in USD, from to for the Luxembourg -domiciled SICAV. Morningstar Direct/FE, gross income reinvested, net of fees, in USD, from to for the Jupiter Global Emerging Markets Equity Unconstrained. The Luxembourg-domiciled SICAV was managed by Ross Teverson from launch on to prior to joining Jupiter. The performance figures are shown as a representation of the fund manager s experience and not necessarily indicative of the potential performance of the Jupiter Global Emerging Markets Equity Unconstrained. 15

17 Summary Emerging market valuations are attractive relative to developed markets and reasonable vs. history The economic backdrop for many emerging markets is supportive A strong case for unconstrained investing in EM - go beyond the index, which is characterised by a polarisation between cheap for a reason and crowded quality stocks There is an attractive long term opportunity in emerging market mid cap stocks There are compelling opportunities to profit from structural, industry and company change across emerging and frontier markets The views expressed are those of the presenter at the time of preparation and may change in the future. 16

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