A favourable macro tailwind doesn’t hurt, but we believe that a high conviction, stock driven approach can lead to strong returns in different market environments.
Mark: Colin, I certainly don’t mind a favourable macro tailwind but many of our viewers know our approach is one that looks to minimise the macro factors with stocks driving the majority of our returns. Any interesting observations from that perspective last quarter?
Colin: Yes, a favourable macro-economic certainly doesn’t hurt, but we are believers that a high conviction, stock driven approach can lead to strong returns in different market environments. For instance, it may surprise some of our viewers and listeners that our strategy actually outperformed the S&P 500 Index over the last five years2. Even with the low sentiment towards Emerging Markets and a trade war between the US and China, we’ve been able to outperform because of this stock driven approach.
Now, you specifically asked about last quarter and interestingly we saw a significant reversal in style leadership from growth to value in November and December. Given our emphasis on running a balanced portfolio, we were still able to outperform the MSCI Emerging Markets Index in those two months3. Now of course, two months is a small sample size but the same happened in 2016, a longer value-led period.
Outlook for 2021 and beyond
Mark: Thanks Colin, so to close the loop on Q4, the areas that helped drive returns for the quarter were Technology, Financials and Materials. We had positive contribution across eight of the eleven sectors. Technology and Financials would make sense given our comments while Consumer Discretionary was the biggest detractor from a sector perspective4. Last question for you Colin, given our long-term investment horizon, what is your outlook for 2021 and beyond?
Colin: There is such a strong investment opportunity in Emerging Markets. Quite simply, the market continues to under-estimate the true worth of sustainable growth businesses. Whether that’s because of short termism or over-reaction to sensational political soundbites, the market is failing to keep up with what's really happening at a company level.
As I look forward to the remainder of 2021 and beyond, that same undervaluation of outstanding company-level fundamentals that's driven our performance over the last five years is what's keeping us excited today. By way of an example, I'm sure everyone is familiar with the meteoric rise of Tesla over the last 18 months and how the markets really woken up to the prospect of electric vehicles going mass market. Our long-established focus on ESG meant that we were investing in this space long before it became mainstream.
Two of the companies I would pick out of our portfolio to exemplify that are Korea’s LG Chemical and Samsung SDI. These are two of the world’s largest providers of the most mission critical component of all for electric vehicles; the battery. Not only do these companies demonstrate global IP leadership but they operate in a market that we expect to grow tenfold over the next decade.
As I look across the strategy, I can point to equally exciting opportunities across a broad range of other sectors including e-commerce, on-line gaming, life insurance, food delivery, healthcare and natural gas. This highlights a real breadth of opportunity that stems well beyond 2021.
Mark: Colin that’s a great response and really I’m glad you brought up electric vehicles, because that is the one area where we’re seeing IP leadership in Emerging Markets coming from a lot of different angles whether it’s batteries, camera lenses or charging stations, EM has world leading IP across the EV ecosystem so it a truly exciting structural growth story.
Colin thanks again for your comments today. We hope our viewers found our update informative. Please feel free to reach out should you any questions.
Past performance is not a guide to future returns. The return may increase or decrease as a result of currency fluctuations.
1 Source: MSCI as at 31 December 2020.
2 Source: Martin Currie and S&P Dow Jones Indices as at 31 December 2020. Martin Currie performance relates to Martin Currie Global Emerging Markets US$ composite. Net of investment advisory fees, broker commissions, and all other expenses borne by investors. A fee rate of 0.70% has been used for the calculation of net of fee performance data. This is our standard fee offering for a US$100 million mandate for this strategy. The figures provided includes the re-investment of dividends. Performance data is supplementary to the GIPS disclosures provided.
3 Source: Martin Currie as at 31 December 2020. Strategy performance relates to Martin Currie Global Emerging Markets US$ composite. Net of investment advisory fees, broker commissions, and all other expenses borne by investors. A fee rate of 0.70% has been used for the calculation of net of fee performance data. This is our standard fee offering for a US$100 million mandate for this strategy. The figures provided includes the re-investment of dividends. Performance data is supplementary to the GIPS disclosures provided.
4 Source: Martin Currie, three-month period to 31 December 2020. Data shown is for the Martin Currie Global Emerging Markets representative account. MSCI Emerging Markets Index used as benchmark.
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Past performance is not a guide to future returns
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The analysis of Environmental, Social and Governance (ESG) factors form an important part of the investment process and helps inform investment decisions. The strategy does not necessarily target particular sustainability outcomes.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable.
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