Artemis SmartGARP Global Emerging Markets Equity Fund
Q4 2024 update
Source for all information: Artemis as at 31 December 2024, unless otherwise stated.
Performance
- Q4 relative performance +2%. Fund +0.5% vs MSCI EM -1.5% (in sterling terms)
- 2024 relative performance +5.1%. Fund +14.5% vs MSCI EM +9.4% and the average peer +7.7%
- Performance in top decile vs. IA GEM sector for one, three and five years and since launch (Apr 2015).
Summary
- Watch our brief outlook for GEM - Global Emerging Markets: 2025 Outlook
- Emerging market stocks remain cheap and unloved, with abundant growth and income opportunities.
- Value bias in the fund is still substantial, 36% discount to MSCI EM…
- …with favourable quality and growth characteristics compared to the market.
Artemis SmartGARP Global Emerging Markets Equity Fund
If the fund were a stock
Key fund characteristics
Source: Artemis as at 31 December 2024. Benchmark is MSCI Emerging Markets.
Performance – Potential Trump administration dominates sentiment
External risks appear to have increased. Protectionist trade policies and aggressive tariff proposals created potential problems for emerging stocks during the quarter. 2024 ended with emerging markets underperforming developed markets by 8.5%. Clearly, EM’s role as a return-generating diversifier has been a disappointing one in the last decade. This has led many to give up on the asset class. Investors' positioning is light.
Rather than focus on which direction the market will move, we take a dispassionate approach and look at the things that might be missed by investors. There is much to be excited about. Low valuations present room for upside, particularly when sentiment changes. There are opportunities in both income and growth.
Attribution – favourable trends supporting our holdings
The UAE appears to be booming, with its status as a global financial and trade hub being further cemented, following years of social and economic diversification efforts. Emaar Properties shares rose 60% in the quarter, as the company increased its dividend and gave a positive update on future payments to shareholders. Emirates Bank also featured among our top contributors. Elsewhere, our holdings in Asia performed well. Wiwynn (tech hardware), Geely (autos), Evergreen (marine transportation) and Bank of China all did well.
These were offset by weakness in Alibaba, Banco do Brasil and Star Bulk Carriers, among others. Taiwan Semiconductor also featured among detractors, despite our almost 7% weighting in the stock. TSMC contributed to over half the returns of the index in 2024. While much has been made of the 'Magnificent Seven' in the US, concentration risks in EM are not dissimilar. Overall, our stock selection contributed positively in Q4 and over 2024 as a whole.
Activity
Our investment process is designed to deal with volatile market conditions. We think in these environments, it is important to stick to the process and to selectively look for opportunities of indiscriminate selling, rather than make widespread changes to the portfolio.
In the last few months, we have been rotating our exposure in the technology sector. We closed our position in Samsung and reduced Hynix to fund increases to TSMC and ASUS computers. We are still optimistic about the prospects for some Chinese stocks. More recently, pessimism has reached extreme levels and with low investor positioning we felt the risk rewards became extremely favourable. There is still a clear disconnect between share prices and the financial performance of businesses in China. As investors are still sceptical about conditions in the economy improving, we believe a disciplined value approach can help unearth great opportunities. We added to our holdings in China Hongqiao, JD.com and Geely. These were funded by reductions in Eastern Air Logistics, Midea Group, Weichai Power and Jiangxi Copper.
The result of these changes is that the fund continues to offer an attractive combination of extremely low valuations and attractive growth prospects. Alongside our China overweight, in aggregate we are overweight Brazil, Korea and UAE and underweight India, Taiwan and Saudi Arabia. At the sector level, financials, consumer discretionary, utilities and industrials feature as the largest overweights. Materials, technology and consumer staples the largest underweights.
We remain heavily biased towards value stocks
The fund offers a forward price earnings ratio of 7.6 vs. 11.8 for the index (36% discount). We think our discipline around valuations is likely to be a rewarding strategy for the years ahead. While value stocks in EM have recovered from depressed levels in recent years, the gap in valuations between cheap and expensive stocks is still stretched. This suggests there is still an opportunity. Typically, significant exposure to value stocks coincides with distressed balance sheets and volatile earnings. This doesn’t appear to be the case today; the fund offers favourable quality and growth characteristics. For instance, our net debt/EBITDA is low, and our free cash flow yield is much higher than the market.
EM – Pessimism well reflected in prices, yet cyclical upturn presents opportunity
There is much to be optimistic about as we enter 2025. The excitement around AI and its adoption, monetary and fiscal easing and supportive valuations in EM all present opportunities. The Chinese economic recovery has so far been underwhelming. More broadly, geopolitics are creating uncertainty. On the positive side, potential for stimulus measures to offset a weaker growth outlook could be significant. But there are risks that make us more cautious. Most notably, the misallocation of capital from good times can create risk in excessively valued companies. Companies that are priced for perfection could well disappoint.
When times are bad, risk aversion can lead to indiscriminate selling. We believe this creates opportunities for disciplined investors. Our process has been designed to look for companies where the fundamentals are signalling good news, yet share prices are not reflecting this optimism.
Moreover, the gap in share prices and fundamentals is still significant across our holdings. The fund continues to be well diversified, with high active share and positioning that is differentiated to the index and peer group.
As we enter a new (but familiar) era under a Trump administration, there is some natural apprehension towards emerging markets. Yet, we are guarding against making rash decisions based on rhetoric. In the past, we have found many great investments against a backdrop of adversity and we believe this will continue to be the case.
Notes and references
Past performance is not a guide to the future. Source: Lipper Limited/Artemis as at 31 December 2024 for class I accumulation GBP. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the fund. Returns may vary as a result of currency fluctuations if the investor's currency is different to that of the class. Classes may have charges or a hedging approach different from those in the IA sector benchmark. Benchmarks: MSCI EM NR GBP; A widely-used indicator of the performance of emerging markets stockmarkets, in which the fund invests. IA Global Emerging Markets NR; A group of other asset managers’ funds that invest in similar asset types as this fund, collated by the Investment Association. These benchmarks act as ‘comparator benchmarks’ against which the fund’s performance can be compared. Management of the fund is not restricted by these benchmarks.
FOR PROFESSIONAL INVESTORS AND/OR QUALIFIED INVESTORS AND/OR FINANCIAL INTERMEDIARIES ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS.
CAPITAL AT RISK. All financial investments involve taking risk and the value of your investment may go down as well as up. This means your investment is not guaranteed and you may not get back as much as you put in. Any income from the investment is also likely to vary and cannot be guaranteed.
This is a marketing communication. Before making any final investment decisions, and to understand the investment risks involved, refer to the fund prospectus (or in the case of investment trusts, Investor Disclosure Document and Articles of Association), available in English, and KIID/KID, available in English and in your local language depending on local country registration, available in the literature library.
Risks specific to Artemis SmartGARP Global Emerging Markets Equity Fund
- Market volatility risk The value of the fund and any income from it can fall or rise because of movements in stockmarkets, currencies and interest rates, each of which can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
- Currency risk The fund’s assets may be priced in currencies other than the fund base currency. Changes in currency exchange rates can therefore affect the fund's value.
- Charges from capital risk Where charges are taken wholly or partly out of a fund's capital, distributable income may be increased at the expense of capital, which may constrain or erode capital growth.
- Emerging markets risk Compared to more established economies, investments in emerging markets may be subject to greater volatility due to differences in generally accepted accounting principles, less governed standards or from economic or political instability. Under certain market conditions assets may be difficult to sell.
- China risk The fund can invest in China A-shares (shares traded on Chinese stock exchanges in Renminbi). There is a risk that the fund may suffer difficulties or delays in enforcing its rights in these shares, including title and assurance of ownership.
Important information
The intention of Artemis’ ‘investment insights’ articles is to present objective news, information, data and guidance on finance topics drawn from a diverse collection of sources. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by Artemis or any third-party. Potential investors should consider the need for independent financial advice. Any research or analysis has been procured by Artemis for its own use and may be acted on in that connection. The contents of articles are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current opinions, expectations and projections. Articles are provided to you only incidentally, and any opinions expressed are subject to change without notice. The source for all data is Artemis, unless stated otherwise. The value of an investment, and any income from it, can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.
