HEAD-TO-HEAD: Stewart Investors versus Templeton

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INTRODUCTION

The coronavirus has hit many emerging market countries hard, and their recovery has been mixed.

China has bounced back sharply, posting positive economic growth, while others, such as Brazil, continue to struggle.

Last year, the MSCI Emerging Markets index delivered an 18.7% return, outperforming the S&P500 (18.4%) and the MSCI All Country World index (16.8%), according to FE Fundinfo.

But there were significant disparities within the asset class.

For instance, the MSCI China index surged 29.7%, and the MSCI Brazil index plunged 18.9%. Clearly, country allocation will be just as critical this year as each country forges its own way out of the pandemic’s legacy.

Nevertheless, the outlook for emerging markets as a whole should be positive if vaccines are successfully rolled out, and global economic activity picks up.

Indeed, according to some analysts, it is now time for investors to switch into emerging markets out of developed markets.

For instance, Tim Love, investment director responsible for Gam Investment’s emerging markets equity strategies, identifies four cyclical factors – risk-return benefits, valuations, liquidity, and re-rating potential – to justify his confidence.

These include historically favourable risk-returns, cheap valuations, abundant liquidity, and re-rating potential as emerging markets get up-graded by credit agencies.

Secular trends also underpin many fund managers’ faith in the asset class.

Demographics, especially the rise of affluent middle classes, the adoption of new technologies, the growth of captive pension funds and launch of domestic consumer orientated reform agendas are among several developments.

FSA asked Andrew Daniels, associate director at Morningstar, to compare two emerging markets equity products, and he selected the Stewart Investors Global Emerging Markets Leaders Fund and the Templeton Emerging Markets Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 20 January 2021)

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