Fund Name: Coronation Emerging Markets Fund Fund team member: Gus Robertson
Update from last meeting
We reviewed the fund in February last year with the Coronation team and recommended that 20% to 25% of an aggressive portfolio should be allocated to the fund on a long-term basis. Since then the fund has performed exceptionally growing 32% or 25% annualised. This is despite the Rand appreciating 12% in US dollars, resulting in an annualised US dollar return of 37%.
Investonline view
The fund has had a volatile past three years and its very attractive 100% discount to fair value has narrowed to 50%, which is around its long-term average. This still means the fund has good value, but it’is not as attractive as it was a year ago.
We believe the fund has the right processes and management in place to produce good long-term double digit growth. We therefore continue to recommend the fund forms 20% to 25% of a long-term aggressive portfolio, despite the fund’s recent strong performance.
Emerging markets, by nature, should provide the best long-term investment returns. The key is to identify the best investment opportunities with the least associated risk.
Coronation has put a strong experienced team in place that has produced a good track record (2.1% p.a. above the emerging market benchmark) over the last 9 years.
It has a tried and tested, solid and disciplined investment process which is necessary when investing in a riskier environment.
Coronation Emerging Markets 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 company 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 10 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 50% less than their implied fair values, which is around the long-term average.
Coronation Emerging Markets Fund Past Performance
Since inception, the fund has produced an annualised return of 9.5% which is 2.1% above the global emerging market benchmark. Over the last three years performance has been volatile with an annualised performance of only 5%, below its benchmark of 9.9%. This is despite its exceptional performance over the last 12 months, up 16%.
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 and changes from last February 2016:
Geographically: Mar 2017 Dec 2015
China / Hong Kong 22% 23%
Developed markets 19% 12%
Brazil 17% 19%
South Africa 15% 8%
India 10% 17%
Russia 9% 6%
The fund’s biggest sector investments:
Mar 2017 Dec 2015
China internet 14% 14%
Brazil education 8% 7%
Car companies 7% 12%
Russian food retail 6% 6%
Latam Financials 6% 9%
India financials 5% 8%
Flow of funds
Over the last 12 months, there have been strong net inflows
Is the Fund Manager invested in the fund?
11 members of the 12-member team are personally invested. We understand Coronation rates this fund as its most attractive investment option.