Fund Name: Coronation Emerging Markets Fund
Fund team member: Brian Thomas
Fund Description
The Coronation Emerging Markets Fund aims to give investors access to the best opportunities in emerging equity markets. The fund actively seeks out undervalued shares to maximise long-term growth. It intends to outperform the emerging market equity benchmark over periods of five years and longer.
The fund invests in shares that are either based in ’emerging’ countries, or earn a significant part of their revenue from emerging economies. It is fully invested in shares at all times.
Background
The fund launched in July 2008 at a time when emerging markets fell grossly out of favour due to the effects of the global financial crises. Since then, Coronation has grown its global team of analysts to 11 who carry out a rigorous research process that currently covers 202 companies. More than 12 overseas research trips are taken each year, meeting around 20 companies per trip.
The fund’s holdings are currently nearly 100% less than their implied fair values, which is the biggest discount to fair value since inception.
Past Performance
Since inception, the fund has produced an annualised dollar return of 4.1% which is 5% above the global emerging market benchmark. Last year’s performance was poor, down 20.7% in dollar terms and, relative to the benchmark, down 14.7%. The poor performance is mainly due to an overweight (25% of fund) position in Brazil.
Investment Style
Bottom-up stock picking underpinned by a strict research process and disciplined fundamental valuations. A sound understanding of the macro environment is key and supports the long-term valuation discounts ascribed to different countries.
Focus on above-average/higher quality businesses and industries that are well understood.
No currency hedging is undertaken.
Portfolio Construction
A concentrated 50 to 60 ideas
Limited to 10% per share, 10% per country industry and 40% per country
Developed market exposure is limited to 25%.
The fund’s major positions:
Geographically:
China / Hong Kong 23%
Brazil 19%
India 17%
South Africa 8%
The fund’s biggest sector investments:
14% China internet consumer
12% Car manufacturers
9% Latin American financials
8% Indian private banks
7% Brazil education
6% Russian food retail
Flow of funds
Over the last 12 months, there have been net inflows with only one major withdrawal.
Is the Fund Manager invested in the fund?
11 of the 12-member team are personally invested. We understand Coronation rates this fund as its most attractive investment option.
Investonline Views
Emerging markets, by nature, will provide the best long-term investment returns. The key is to identify the best investment opportunities with the least associated risk.
Coronation has put together a strong experienced team over the last 8 years that has produced a good track record (5% p.a. above emerging market benchmark).
It has a tried and tested, solid and disciplined investment process which is necessary when investing in a riskier environment.
We understand that internally, Coronation rates this fund as its most preferred investment opportunity.
As the fund’s underlying investments are at their biggest discount to fair value (nearly 100%), we believe the fund should form part (20% to 25%) of a long-term, aggressive investment portfolio.