Winner: Templeton Emerging Markets
Launched in summer 1989 as the first global emerging markets trust, Templeton Emerging Markets Investment Trust (TEM) has grown into the giant of its sector, with assets of over £2 billion. With Mark Mobius in charge for its first 26 years, TEM capitalised on the MSCI Emerging Markets index’s strong performance through much of the 1990s and 2000s. It suffered badly during a difficult year for emerging markets in 2015, but then recovered exceptionally well in 2016, and as a result claims our award.
The turnaround in fortunes started soon after Carlos Hardenberg stepped up to lead manager, moving from Istanbul to London in the process. The octogenarian Mobius remains part of Franklin Templeton’s Hong Kong-based team, and India-based Chetan Sehgal is senior research analyst.
Like Mobius, Hardenberg looks for capital growth from companies with strong corporate governance and robust balance sheets that are generating plenty of cash, and he subscribes to Franklin Templeton’s value-oriented approach. But he has made significant portfolio changes.
By increasing the number of holdings to around 90, he has made it easier to include some exposure to less-accessible frontier markets as well as to some medium-sized companies. Even more significantly, he has shifted the sectoral emphasis away from banks and energy in favour of information technology and consumer discretionary.
The sectoral changes reflect Hardenberg’s belief that emerging markets have become less dependent on exports of commodities and goods, and are more driven by domestic growth, technology and services. On a broader front, he thinks emerging market fundamentals look promising, with corporate earnings starting to improve and investor sentiment turning in their favour.
Such hopes are counterbalanced by worries about president Donald Trump’s protectionist views, rising US interest rates, a potentially stronger US dollar, and world politics in general. Hardenberg’s ambivalence has been demonstrated by his reluctance to draw down TEM’s new multi-currency loan facility, which could raise gearing to 7 per cent.
Highly commended: Baring Emerging Europe
Baring Emerging Europe Trust (BEE) is highly commended, having achieved an outstanding 61.5 per cent gain in its NAV total return in the year to 31 January 2017. It also held up better than every other trust in this sector in the previous year.
BEE invests in eastern European equities for long-term capital growth and has been managed since December 2008 by Matthias Siller. Russia accounts for 60 per cent of BEE’s portfolio, including over 10 per cent in Sberbank and 9 per cent in Lukoil. Turkey accounts for 14 per cent and Poland for 11 per cent.
The manager has been encouraged by the revival of IPO activity in Russia, and by takeover offers at a fair price for minority shareholders in a listed Russian retailer and a Turkish chicken producer, welcoming them as a sign of improved corporate governance.