September, 2023
• The Fund returned -2.87%, net of fees, in September 2023, compared with a return for the Benchmark of -2.28%.
• Nearly all sectors, with the exceptions of Energy and Utilities, moved lower in September, with IT and Consumer Discretionary leading the index lower. For the Fund, the largest relative detractors were underweight positioning and holdings in Financials, such as AIA Group and BMV Group, and holdings in Consumer Staples, namely Dino Polska. These were partially offset by holdings in Industrials, led by AirTAC International, and in Health Care, including WuXi Biologics. There were no initial purchases or final sales within the portfolio during the month.
• Energy company China Resources Gas Group has experienced considerable derating over the course of 2023. And whilst the business is facing some headwinds, fundamentally its investment case remains sound. China’s slowing property market is having an impact on connection fees for gas distributors, China Resources included, but the rest of the business is in pretty good health. Volume growth remains robust, whilst falling input costs and pricing reforms should boost margins. Long-term profitability is also looking up for a number of reasons, amongst them a recently signed ten-year gas procurement contract with PetroChina Natural Gas, which will enable China Resources to purchase gas at an attractive rate. The company is also seeing good growth in its Comprehensive Services business, which aims to maximise the profitability of 55 million residential customers.
• There was a measured but positive tone to Walter Scott’s meetings with China Resources Gas and other portfolio companies in the region. Despite China’s economic difficulties acting as a brake on the post-Covid recovery, the long-term outlook is overwhelmingly optimistic.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Walter-Scott-Emerging-Markets-Fund-Performance-Report-PRRP-WSEMF-ANZ-2-1.pdfAugust, 2023
The Fund returned -3.04%, net of fees, in August 2023, compared with a return for the Benchmark of -2.36%, with another challenging month for emerging market equities driven by a familiar culprit – the dire economic data coming out of China, which continued to spook investors and saw calls for the authorities to do more to stimulate activity and shore-up confidence than the relatively piecemeal measures announced so far by Beijing.
• Energy was the sole market sector to advance in August, with Consumer Discretionary and Communication Services leading the index lower. For the Fund, the largest relative detractors were holdings in Utilities, led by ENN Energy, and in Financials, such as Ping An Insurance and AIA Group. These were partially offset by holdings in Industrials, such as Zhejiang Sanhua and OMA, and in Communication Services, including Sarana Menara Nusantara. There were no initial purchases or final sales within the portfolio during the month.
• It appears that investors’ aversion to all things China will continue to result in some exaggerated share price responses to news flow. ENN Energy, for example, posted a set of disappointing but far-from-disastrous first-half results, pushing its shares sharply lower during the month. Key to the fall was an unexpectedly large decrease in gas volumes over the period. Whereas management had guided for an increase of 10%, the unwelcome reality was a decline of 7% due primarily to shrinking demand from industrial customers. Whilst the scale of the disparity between expected and actual gas volumes was certainly a major disappointment, the market reaction suggests little attention was paid to the positives in the numbers. Not only were connection fees (~20% of profits) better than feared, but margins were strong, cash flow was robust and new business continued to grow well. Add in recent good news around regulatory changes to residential gas pricing in China and the extension of the company’s gas concession in the city of Changsha, and it’s safe to say that the current environment for ENN is far from universally bad. Longer term, China's ambitious environmental targets will drive a continued increase in the consumption of natural gas, to the benefit of ENN’s extensive network of assets.
• Caught in a vice between US Federal Reserve rate rises and economic slowdown in China, emerging market equities may continue to underperform their developed market peers in the near term. From a longer-term fundamental perspective, however, this disparity is unlikely to persist. Many emerging economies continue to perform well, and many have ample scope to cut interest rates sharply should inflationary pressures continue to ease. Walter Scott would expect these strong fundamentals, and those of the companies in the portfolio, to be recognised once investor sentiment improves.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Walter-Scott-Emerging-Markets-Fund-Performance-Report-PRRP-WSEMF-ANZ-1-1.pdfJuly, 2023
• The Fund returned -0.11%, net of fees, in July 2023, compared with a return for the Benchmark of 4.93%, with ongoing concerns around the health of the Chinese economy remaining a source of negative market sentiment towards some of the portfolio’s Chinese and China-related businesses, impacting relative performance.
• All emerging market sectors advanced in July, with Consumer Discretionary, Financials and Materials making the largest contributions to index returns. For the Fund, holdings in Industrials, including AirTAC International and Zhejiang Sanhua, in Materials, namely Hansol Chemical, and in Consumer Discretionary, which lagged the rise of the broader sector, were the largest relative detractors. During the month, Walter Scott completed the initial purchase of Sinbon Electronics, a Taiwanese manufacturer of cables and connectors for specialist applications, with around 35% exposure to green industries, such as renewable energy, smart grids, ebikes, and electric vehicles. Global trends towards decarbonisation and electrification will be material drivers of future growth.
• A broadly pessimistic view of China’s prospects appears to have become embedded in the collective psyche of investors of late. A barrage of negative headlines around insipid consumer spending, youth unemployment and the travails of the once-mighty real estate sector have further cemented the bearish narrative. Undoubtedly the economy has some serious challenges that need to be addressed, but fixating solely on these challenges risks overlooking the country’s very real strengths, as well as the robust long-term fundamentals of many excellent Chinese and China-related companies. Silergy, for example, has been in the midst of a particularly painful downturn in the inventory cycle of its core analogue semiconductor market, but there are signs that this cyclical headwind is now starting to dissipate, which should bring its compelling long-term opportunities back into focus. The business is particularly excited about the opportunity in automotives, as electric vehicle adoption increases demand for analogue semiconductors. Taiwanese pneumatic component manufacturer AirTAC International, meanwhile, is seeing demand improve month-on-month, despite some weaker manufacturing data in its core Chinese market. On a call in June, AirTAC’s CFO explained that the market was too optimistic about China’s post-Covid recovery, but that today’s slow-but-steady recovery is in line with the company’s expectations.
• While the portfolio’s underperformance in July has been disappointing, Walter Scott sees little correlation between this and the fundamentals of the investee companies. Walter Scott will, as always, monitor closely each company for evidence of a deterioration in their long-term investment case, and in time fully expect these fundamentals to reassert themselves and for investors to again recognise the merits of market-leadership, consistent cash generation, pricing power, cost discipline and excellent management.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Walter-Scott-Emerging-Markets-Fund-Performance-Report-PRRP-WSEMF-ANZ-5.pdfJune, 2023
• The Fund returned 1.13%, net of fees, in June 2023, compared with a return for the Benchmark of 0.91%.
• Emerging market equities lagged their developed market peers in June, with the Consumer Discretionary and Energy sectors driving the subdued advance. For the Fund, holdings in Consumer Staples, such as Dino Polska and Clicks Group, and in IT, including LEENO Industrial and Koh Young Technology, were the largest relative contributors. Relative detractors included holdings in Consumer Discretionary, namely Allegro.EU, and in Communication Services, including Naver and Telekomunikasi Indonesia. During the month, Walter Scott completed the final sales of Jardine Matheson, to raise funds for other portfolio companies with more compelling fundamental characteristics, and Sunny Friend, which is facing greater profitability headwinds from evolving environmental regulation, unexpected maintenance shutdowns, and increased competition.
• Two members of the Walter Scott Research team travelled to Taiwan and China in June, providing a welcome chance to meet faceto-face with the management teams of several portfolio companies on their home patch after a long period of travel restrictions. One company that is capitalising on the post-Covid landscape is AIA Group, as explained by AIA China CEO Fisher Zhang during a meeting at the company’s Shanghai offices. One of the lasting impacts of Covid has been growing recognition of the value of insurance. People are now more cautious about health and risk, and understand the need to plan accordingly. And as interest increases, so too does the sophistication of the average consumer. This transformation of demand is forcing the supply side of the industry to adapt in turn. Three years ago, the life insurance market in China had ten million sales agents. Most were part-time operators from domestic Chinese companies who lacked the requisite knowledge to meet changing consumer demands. Today, the number of agents has more than halved to three-to-four million. Over the same period, the number of AIA China agents has held steady, leaving the company ideally placed to grow market share as it continues to expand its presence across China.
• Geopolitical and macroeconomic concerns are likely to dominate the headlines in the near term, but as long-term fundamental investors Walter Scott continues to look beyond the headlines and stay focused instead on the progress of the portfolio companies. Here, the Research team remain confident in their ability to leverage their inherent strengths to capitalise on what remain, despite some near-term headwinds, highly compelling long-term growth opportunities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Walter-Scott-Emerging-Markets-Fund-Performance-Report-PRRP-WSEMF-ANZ-4.pdfMay, 2023
The Fund returned 0.20%, net of fees, in May 2023, compared with a return for the Benchmark of 0.40%. Emerging markets remained on a cautious footing across the month as investors continued to monitor closely China’s post-Covid rebound but found only cause for concern, as industrial production and consumer spending proved weaker than many had expected.
The IT sector was the sole positive index contributor of note during the month, with Consumer Discretionary, Materials and Communication Services among the largest detractors. For the Fund, holdings in Consumer Staples, such as Clicks Group and LG Household & Health Care, and in Financials, including AIA Group and Ping An Insurance, were the largest relative detractors. Relative contributors included holdings in Materials, namely Hansol Chemical, and an underweight to the sector, as well as holdings in Consumer Discretionary, including Allegro.EU and Hyundai Mobis. There were no initial purchases or final sales within the portfolio in May.
After a chastening 2022, a more optimistic narrative is now emerging around Brazilian equities. The economic picture is admittedly far from perfect, with recent data telling a somewhat mixed story, but there are reasons for positivity, most notably perhaps an easing of inflationary pressures. Having raised rates aggressively in a bid to quell runaway post-pandemic inflation, Brazil’s central bank now has some scope to deliver rate cuts in a bid to boost activity. TOTVS, Brazil’s leading ERP (Enterprise Resource Planning) and financial technology company with a focus on small- and medium-sized businesses, and one of the Fund’s top individual contributors in May, reported during the month. The first three months of the year saw the business make encouraging progress on its core strategy of developing the ‘3D Ecosystem’ across its three primary business units – Management, Techfin, and Business Performance – with year-on-year revenues up 17%, 16% and 32% respectively. Through its techfin business, however, TOTVS is seeing some evidence of macroeconomic pressures. Profitability at Supplier, the B2B credit intermediary acquired by TOTVS in 2019, was negatively impacted by increased credit restrictions and a slowdown in some market segments. Supplier’s response was to successfully focus on preserving its historically low credit delinquency levels, which fell sharply to end the quarter 190 basis points below the Brazilian average – a welcome sign that TOTVS can leverage its operational excellence to navigate near-term headwinds.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Walter-Scott-Emerging-Markets-Fund-Performance-Report-PRRP-WSEMF-ANZ-3.pdfApril, 2023
Performance summary
• The Fund returned -1.32%, net of fees, in April 2023, compared with a return for the Benchmark of 0.20%, as uncertainty continued to pervade emerging market equities and the usual suspects – geopolitical fears, monetary policy concerns, China growth worries – weighed on investor sentiment.
• Financials and Energy moved higher in April, while Consumer Discretionary and IT lagged. For the Fund, holdings in Industrials, such as ASUR and Zhejiang Sanhua, and an underweight to Financials were the largest relative detractors. Relative contributors included holdings in Consumer Discretionary, namely Allegro.eu, and an underweight to the sector, as well as holdings in Consumer Staples, including Dino Polska and Wal-Mart de Mexico. Walter Scott completed the final sale of Meituan during the month, following Tencent’s decision to distribute its holding in the company to Tencent shareholders by way of an in-specie dividend.
• Indonesian communication services companies PT Telekomunikasi Indonesia (Telkom Indonesia) and Sarana Menara Nusantara (SMN) both delivered robust results during the month. At the former, year-on-year revenues and operating profit were up 2.9% and 4.3% respectively. The fixed broadband offering, IndiHome, continued to drive revenue growth, with another 9.2 million subscribers added in fiscal year 2022. Telecom tower operator SNM’s fiscal-year results also showed good sales growth, helped by the acquisition of STP, which added 7,000 to the company’s overall mast count. There was pressure on organic growth from the merger of two of its major telecom customers, Indosat and Hutchison, which resulted in the rationalisation of the merged entity’s tower portfolio. This will likely weigh on growth in the near term but does nothing to compromise the long-term investment rationale for SNM. Mobile data consumption in Indonesia remains far below that of mature markets and future growth will require investment in new towers and tenancies to maintain the quality of the network. More broadly, both SNM and Telkom Indonesia have been beneficiaries of Indonesia’s relative economic outperformance in recent years.
• Optimism amongst emerging market investors has ebbed somewhat in recent weeks, with the ebullience of January now a distant memory. Not that outright pessimism has taken hold, although renewed fears around instability in the banking sector and its knock-on effects on economic activity has the potential to turn investors more bearish. Although further bumps in the road for the global economy may be unavoidable, Walter Scott retains confidence in the ability of the companies in the portfolio to remain resilient whilst continuing to harness the long-term growth opportunities in their markets.
File:March, 2023
The Fund returned 2.81%, net of fees, in March 2023, compared with a return for the Benchmark of 3.74%, with the eyes of emerging market investors resting on Silicon Valley for much of the month. The collapse of Silicon Valley Bank (SVB), a key player in the tech ecosystem, had observers pondering the implications for not just the tech start-up scene that relied so heavily on SVB funding, but also the health of the wider financial system.
All emerging market sectors, with the exception of Real Estate, advanced in March. For the Fund, the largest relative detractors included holdings in IT, such as Silergy and LEENO Industrial, and in Utilities, namely China Resources Gas Group. Relative contributors included holdings in Industrials, such as OMA and AirTac International. There were no initial purchases or final sales within the portfolio during the month.
Fears of contagion and worries over skeletons in the closets of other financial institutions led to some indiscriminate selling of financials during the month, with Ping An Insurance and AIA Group both weaker as a result. Such jitters are to be expected; investors tend to get very jumpy at even the merest hint of problems in the banking sector and memories of 2008 linger. Central to SVB’s demise, however, was a reliance on a narrow depositor base and a spectacularly ill-advised bet on long-dated US Treasury bonds. Both Ping An and AIA on the other hand are well-diversified insurance businesses with reputations for being conservatively managed. Their long-duration liabilities are matched by long-duration assets (duration matching was conspicuous by its absence at SVB) and both are run by experienced management teams with a long-term perspective and a focus on resilience. Recent market turbulence aside, the long-term prospects for these companies are positive.
Walter Scott often reiterates the importance of certain criteria that the investment team look for in investee companies. Amongst these are balance sheet strength, the ability to finance growth internally, and limited debt levels. Often the merits of such attributes only come truly into focus during more challenging periods for corporates. As the impact of the new interest rate regime starts to make itself felt in the real economy and as credit availability likely tightens in the wake of the banking sector’s recent travails, this should be one such time. An environment of this kind is likely to prove an unforgiving one for those companies who used excessive leverage to finance growth during the long era of cheap money.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Walter-Scott-Emerging-Markets-Fund-Performance-Report-PRRP-WSEMF-ANZ-2.pdfFebruary, 2023
• The Fund returned -1.70%, net of fees, in February 2023, compared with a return for the Benchmark of -2.28%, with some of the steam coming out of Chinese and Hong Kong equity markets in February due to a mix of both market technicalities and more fundamental macroeconomic concerns.
• IT and Consumer Staples were the only emerging market sectors to advance in February, with the Consumer Discretionary sector the most significant detractor. For the Fund, the largest relative contributors included holdings in Industrials, such as AirTac International and Voltronic Power, and in Consumer Discretionary, namely Zhejiang Supor, as well as an underweight to the latter. Relative detractors included holdings in Financials, including Ping An Insurance and Grupo BMV, and an underweight to the sector. During the month, Walter Scott completed the initial purchase of Aspeed, the global leader in baseboard management controllers, a form of micro-controller enabling remote server management. Long-term growth for the company will be underpinned by server deployments of cloud-computing hyper-scalers, where the opportunity is significant.
• Taiwanese industrials Voltronic Power and AirTac International both reported good full-year results. In a robust demand environment, Voltronic delivered excellent sales and profitability growth, as customers played catch up on deferred orders for the company’s uninterruptible power supply systems and power inverters. The mix of products sold was beneficial for Voltronic’s gross profit margin, as was the strength of the US dollar. AirTac, which makes pneumatic products for a range of end markets, saw momentum accelerate in the final months of 2022 due to rising demand from its automotive, battery and energy customers. Meanwhile, moderating input cost inflation and strong utilisation rates boosted operating margins. Looking ahead, management sounded a confident note, particularly on its efforts to expand into the linear-guide market. After lacklustre progress last year, the prospects for this market appear brighter in 2023, thanks in part to shorter lead times and a 20-30% pricing discount on AirTac’s linear-guide product offering.
• In the weeks ahead, investors will be watching carefully for signs that China’s reopening is energising its domestic economy, as well as sending out positive ripples more globally. Eyes and ears will also be focused on inflation prints and the prognostications of central bank policymakers. Until a clearer picture emerges, emerging market indices may remain largely directionless. More pertinent to Walter Scott’s research and analysis, however, will be the ongoing performance of the companies in the portfolio as they navigate this still challenging but broadly more optimistic operating landscape.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Walter-Scott-Emerging-Markets-Fund-Performance-Report-PRRP-WSEMF-ANZ-1.pdfJanuary, 2023
Performance summary
• The Fund returned 7.33%, net of fees, in January 2023, compared with a return for the Benchmark of 3.84%, with sentiment bolstered by an anticipated reignition of economic activity following China’s emergence from zero-Covid restrictions.
• The IT and Consumer Discretionary sectors powered emerging market gains during the month; Utilities and Energy were among the few detractors of note. The largest relative contributors for the Fund included holdings in IT, such as Silergy and TSMC; in Financials, including Ping An Insurance and Grupo BMV; and in Industrials, such as Zhejiang Sanhua. Relative detractors included holdings in Consumer Staples, namely Clicks Group, and an overweight to the sector.
• EM headlines were dominated in January by the verbal sparring between Adani Enterprises, a ports-to-power stations conglomerate and one of India’s most high-profile companies, and little-known US investment research firm Hindenburg Research, which accused Adani of “brazen stock manipulation”, “accounting fraud” and “corruption, money laundering and theft of taxpayer funds” following a two-year investigation. While Walter Scott has little insight to add on Adani, it serves as a useful opportunity to re-highlight some of the key concerns driving the current absence of Indian equities from the portfolio. Walter Scott has long been wary of companies that expand aggressively into areas of little-to-no expertise, a not uncommon feature of many Indian companies. As a current member of the Research team noted after a trip to India in 2008, “many of the Indian companies we met were vertically integrating or diversifying. The result was often a bewildering mix of activities with a high potential for something to go nastily wrong”. Perhaps even more crucially, the Indian equity market has also for many years traded at a significant premium to the wider EM universe; while valuation may not be the defining feature of Walter Scott’s investment process, it is nonetheless an important consideration and discipline is vital.
• Many of the headwinds that hindered emerging markets over 2022 have undoubtedly weakened. Most notably, China’s reopening should prove a major boon. The adherence of many portfolio companies to their long-term growth trajectories through the upheaval of the last couple of years gives Walter Scott confidence that they will be well placed to benefit should we see a sustained upswing in the operating environment.
December, 2022
Performance summary:
• The Fund returned -0.76%, net of fees, in December 2022, compared with a return for the Benchmark of -2.63%, with the China reopening trade continuing as the major theme in the final weeks of 2022, although enthusiasm has been tempered to a degree by the rapid spread of Covid-19 across large sections of the population.
• Most emerging market sectors retreated in December, with Communication Services and Consumer Discretionary the main exceptions. For the Fund, the largest relative contributors again included holdings in Financials, including AIA Group and Ping An Insurance, and in Utilities, led by Guangdong Investment. Relative detractors included overweights to Industrials and IT. There were no initial purchases or final sales within the portfolio during the month.
• While the decision to ditch zero-Covid was received positively by markets, reopening was not the only positive China story in town in December. Tasked with setting the national economic agenda for the coming year, the Central Economic Work Conference held its annual meeting in Beijing mid-month. Encouragingly, the external messaging emanating from the conference was avowedly progrowth. Pledges to support private enterprise and the technology sector were welcome departures from the less-than-friendly language of the last couple of years, while a commitment to stabilising the real estate sector was also well received. Shares in Tencent Holdings, Alibaba Group, and Tencent Music Entertainment, all of which have been at the sharp end of Beijing’s recent regulatory crusade, responded positively to this more accommodative tone.
• Moving into 2023, inflation and interest rates, elevated by the standards of recent history, and the squeeze on consumer demand will ensure that the operating backdrop remains a challenging one for many companies. While mindful of these macroeconomic issues, Walter Scott’s focus remains on the progress of portfolio companies and on researching and analysing new investment ideas. The companies in the portfolio are well-managed, resilient businesses with balance sheets and market positions that offer a degree of protection in tough conditions.
November, 2022
The Fund returned 10.80%, net of fees, in November 2022, compared with a return for the Benchmark of 9.64%, as investors flocked to Chinese and Hong Kong equities on news of government support for the debt-laden real estate sector and a very slight relaxation of draconian lockdown regulations.
• All emerging market sectors advanced in November, led by strong bounces in Consumer Discretionary, IT, Communication Services and Real Estate. For the Fund, the largest relative contributors included holdings in Financials, including AIA Group and Ping An Insurance, and an underweight to the sector, and holdings in Utilities, led by Guangdong Investment and ENN Energy. Relative detractors included holdings in Consumer Discretionary, which lagged the rise of the broader sector. During the month, Walter Scott completed the final sale of Ace Hardware, with the company not articulating a clear and credible strategy to combat the risks of intensifying online competition and significant price discounts offered by competitors, which has resulted in sales remaining meaningfully below pre-Covid levels.
• China’s rising tide helped lift the broader emerging market boat in November. There were welcome signs of a nascent recovery at both Tencent Holdings and Alibaba Group, two companies that have been at the epicentre of the storm buffeting Chinese equities over the past couple of years. Faster-than-anticipated, Tencent has rightsized its cost base, primarily by pulling back from projects with low profitability and making savings on sales and marketing. This helped support gross margins and sparked a return to positive underlying net income growth for the first time in five quarters. Cost savings are also bearing fruit at Alibaba, although the operating backdrop for the e-commerce giant remains a difficult one. Lockdowns have been highly detrimental for the company at a time of already weak consumer sentiment. Hopes that China’s annual Single’s Day shopping jamboree would help to lift the gloom were dashed when management announced that sales were flat compared to the previous year. That said, the company’s third-quarter results showed incremental signs of improvement and belt-tightening is helping to support the bottom line across most business divisions. As with Tencent, a more stable regulatory environment will be an unalloyed positive for Alibaba going forward.
• With the operating environment likely to remain challenging for the foreseeable future, business models will continue to be subject to a variety of stresses and strains. It will be important to distinguish between those that are the inevitable result of near-term headwinds and those that could structurally impair a company’s long-term investment rationale. As buoyant as equity markets have been in recent weeks, vigilance remains vital.
October, 2022
• The Fund returned -1.79%, net of fees, in October 2022, compared with a return for the Benchmark of -2.57%, as Chinese equities in particular lagged following disappointing data that highlighted the profound challenges facing the Chinese economy.
• In contrast with developed markets, sector performance was mixed in emerging markets in October, with Consumer Discretionary and Communication Services detracting most from index returns. For the Fund, the largest relative contributors included holdings in Consumer Discretionary, including Allegro.EU and Hyundai Mobis, and an underweight to the sector. Relative detractors included holdings in Financials, such as Ping An Insurance and AIA Group, and an underweight to the sector. During the month, Walter Scott completed the final sale of ASM Pacific Technology, owing to a deteriorating sales outlook for the company.
• Given the volatility in Chinese equity markets this month, the portfolio’s underweight exposure to China was a relative positive. It was still a difficult month for several Chinese holdings, however, most notably Alibaba Group and Tencent Holdings. More positively, shares in Mindray, a leading Chinese medical devices company, were boosted by the news that innovative medical equipment would be exempted from China’s centralised drug procurement program. The company, with its focus on high-tech areas of the med-tech market, remains well aligned with central government plans for domestic innovation and import substitution.
• As we enter the closing months of 2022, the outlook for emerging market equities remains uncertain. The strength of the US dollar, elevated inflation, and tighter financial conditions are justifiable concerns, while the geopolitical situation, most notably in Ukraine and Taiwan, shows little sign of improvement. Significant unease around China’s prospects, meanwhile, both economically and politically, continues to exert downward pressure on the broader asset class. With few signs that these headwinds will dissipate in the near term, continued volatility in equity markets appears likely. Walter Scott’s approach will be to look through future market gyrations and stay focused on the fundamentals of the portfolio companies and their evolution through time.
September, 2022
• The Fund returned -6.15% in September 2022, compared with a return for the Benchmark of -5.87%, with emerging market indices firmly on the backfoot as gathering clouds over the global economy and the US Federal Reserve’s inflation fight had investors shying away from risk assets.
• With the exception of Consumer Staples, all market sectors fell in September, led by IT and Consumer Discretionary. For the Fund, the largest relative detractors included an underweight to Financials and holdings in the sector, including AIA Group and Ping An Insurance, and holdings in Materials, namely Hansol Chemical. Relative contributors included holdings in Health Care, such as Fleury and Kalbe Farma, and in Industrials, such as Grupo Aeroportuario Centro Norte and Jardine Matheson.
• During the month, Walter Scott completed the initial purchase of Mindray and the final sale of Sunny Optical Technology Group. Mindray is China's largest medical device company, with leading market shares in patient monitoring, in-vitro diagnostics and medical imaging equipment. Long-term growth will be underpinned by healthcare infrastructure demand in China and other emerging markets, as well as the introduction of higher-end products. Sunny Optical, which makes camera lens sets and modules, was sold as competition within the handset camera lens market has intensified in recent years, destabilising pricing within the industry. At the same time, the trend of handset lens specification upgrades has slowed, further pressuring the ability of companies in the industry to offset ASP declines with specification mix upgrades.
• Going into the final quarter of 2022, the near-term backdrop for emerging market equities is likely to remain turbulent. The extent of the macroeconomic headwinds facing companies will test the earnings resilience of many. Idiosyncratic risks will also be to the fore. In October alone, Brazil will face weeks of fractious electioneering while the 20th National Congress of the Chinese Communist Party will be held in Beijing. Any signs emerging from the latter of further regulatory crackdowns or renewed bellicosity towards Taiwan would not be received well by investors. With near-term volatility seemingly assured, patience and a long-term view will be as important as ever.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/191770750.pdfJuly, 2022
The Fund returned -1.44% in July 2022, compared with a return for the Benchmark of -1.70%, as emerging markets failed to keep pace with the strong gains of their developed market peers following another aggressive bout of selling in Chinese equity markets. • IT was the lone contributor of note to market returns in July, while Consumer Discretionary and Communication Services led the market lower. For the Fund, the largest relative contributors included holdings in Consumer Staples, such as LG Household & Health Care and Dino Polska, and in Communication Services, including Naver Corporation and Sarana Menara Nusantara. Relative detractors included holdings in Financials, such as Ping An Insurance and AIA Group, and an underweight to the sector. There were no initial purchases or final sales within the portfolio during the month.
• LG Household & Health Care reported a better-than-expected set of second-quarter results, suggesting the Seoul-based business is starting to recover from recent China-related disruption. Earlier in the year, pandemic restrictions in China and bottlenecks at the ports of Shanghai and Shenzhen drove a sharp fall in first-quarter revenues and profits at LG’s important luxury cosmetics business. But while the still-challenging operating environment ensured second-quarter activity was considerably weaker than the comparable quarter in 2021, there was an encouraging improvement relative to the first three months of 2022. It was a kinder environment for LG’s household goods and beverage businesses, however. Sales at the former rose 10% thanks to the strong performance of several premium brands, although rising input cost crimped profitability. Beverages, meanwhile, was boosted by the increasing popularity of zero and low-calorie drinks.
• With the impact of inflation on consumers and businesses likely to worsen in the near term, and corporate sentiment sagging, the merits of a resilient business model and robust balance sheet, often underappreciated during times of plenty, are again becoming self-evident. This is particularly true in emerging markets. Walter Scott believe that the astutely managed, cash generative companies within the portfolio, possessing low levels of leverage and compelling growth opportunities, remain well positioned to negotiate the challenges that lie ahead
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/189606057.pdfJune, 2022
The Fund returned -0.44% in June 2022, compared with a return for the Benchmark of -2.61%, as the easing of pandemic-related restrictions and the promise of monetary and fiscal stimulus lifted Chinese equities and added a degree of resilience to emerging markets, in another volatile month for equities globally.
• The Consumer Discretionary sector saw the largest gains in June, owing to strong performance by Alibaba Group, while IT and Financials were the largest market detractors. For the Fund, the largest relative contributors were holdings in Industrials, led by Zhejiang Sanhua, and in Financials, including Ping An Insurance and AIA Group. These results were partially offset by holdings in Consumer Discretionary, such as ACE Hardware and Hyundai Mobis, and an underweight to the sector. There were no initial purchases or final sales within the portfolio during the month.
• Walter Scott has continued to engage with management teams to glean insights into how they are navigating what remains a challenging environment. The CEO of WuXi Biologics, one of largest players in the global contract development and manufacturing organisation (CDMO) industry, was in bullish spirits despite the impact of lockdowns on its Shanghai factory. During the restrictions, around 30-40% of the WuXi’s Shanghai workforce volunteered to stay in the factory to keep production running.
Remarkably, despite this reduced headcount, the factory still ran at 100% capacity. As a CDMO, WuXi provides outsourcing services to global pharmaceutical companies, helping them to develop and manufacture therapies in the fast-growing biologics space. With biologics expected to continue taking market share from chemically synthesised therapies, WuXi has ambitious plans to increase manufacturing capacity nearly threefold by 2024. During the meeting, WuXi’s CEO confirmed that the company is already looking beyond 2024 and expects to build further capacity across the US, Europe, Singapore and China. This will support the business as it moves into newer, more-profitable technologies, such as fusion proteins and bispecifics, where few rivals can match its expertise.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/188913758.pdfMay, 2022
The Fund returned -0.38% in May 2022, compared with a return for the Benchmark of -0.50%, with May initially shaping up to be yet another ugly month for emerging market investors until a late-month rally provided some much-needed respite. • IT and Financials were the largest sector contributor and detractor, respectively, to market returns in May. For the Fund, the largest relative contributors were holdings in Industrials, including AirTAC and Voltronic Power, and in Utilities, such as ENN Energy and China Resources Gas Group. These results were partially offset by holdings in IT, such as Koh Young Technology, LEENO, and TOTVS. There were no initial purchases or final sales within the portfolio during the month.
• LEENO, a Korean manufacturer of miniature pins and sockets used to detect electrical defects at the final stages of semiconductor manufacturing, reported 30% sales growth in the first three months of the year. Margins also rose thanks to positive operating leverage, while bullish commentary from management augurs well for the future. The quarterly results of TOTVS, the market leader in corporate software solutions in Brazil, revealed that the company’s financial services-related business, wage increases and higher R&D spending had blunted profitability. However, the negative market reaction somewhat ignored strong revenue growth and the robust performance of the all-important management software business which accounts for 85% of overall revenues. Record levels of software-as-a-service signings were particularly encouraging and the long-term prospects for TOTVS remain bright.
• With the current balance of risks very much skewed to the downside, a near-term deterioration in conditions and further volatility seem plausible. Such a scenario would further test the mettle of management teams and the resilience of business models across emerging markets. Walter Scott’s confidence in the ability of the portfolio companies to pass such a test is high but vigilance and an unwavering commitment to the firm’s process and philosophy will remain key.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/187690409.pdfApril, 2022
• The Fund returned -2.58% in April 2022, compared with a return for the Benchmark of -0.21%, as intensifying concerns around Ukraine, inflation, US monetary policy and lockdowns in China offered no respite from the volatility that scarred emerging market equities in the opening months of 2022.
• IT and Materials led the market lower in April, while Utilities and Energy were amongst the largest positive contributors to index performance. The Fund’s largest relative detractors were holdings in Consumer Discretionary, namely Allegro, and Consumer Staples, such as Dino Polska. These results were partially offset by holdings in IT, led by Taiwan Semiconductor, as well as the Fund’s overweight to Utilities.
• Despite the last-gasp rally at the end of the month, the Chinese market remains in a challenging period. Indices have fallen a long way in a short space of time. Rapid and broad-based market downturns rarely discriminate. High-quality companies with market-leading positions and strong financial profiles are often punished just as harshly as those with more speculative growth prospects, high leverage, or insufficiently differentiated offerings. While such periods of convergence rarely last long, they can lead to the share prices of excellent companies becoming detached from the underlying fundamentals. For those with a long-term horizon, this can present opportunities. The initial purchase of WuXi Biologics was completed during the month, a global leader in the CDMO (Contract Development and Manufacturing Organisation) industry. CDMO’s provide outsourcing services to global pharmaceutical companies. WuXi is focussed exclusively on biologic drugs, the fastest growing class of therapeutic compounds due to reduced side effects and their ability to better target conditions. With some 11% of the biologics market, WuXi is the number two player globally and the dominant CDMO in China
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/186801701.pdfMarch, 2022
The Fund returned -2.64% in March 2022, compared with a return for the Benchmark of -5.55%, as emerging market equities suffered another disappointing month amid numerous headwinds, from the conflict in Ukraine and renewed lockdowns in China to soaring commodity prices and supply chain bottlenecks.
• All market sectors declined in March, with IT and Consumer Discretionary the worst performers, and Utilities and Financials mostly flat. The Fund's largest relative contributors were holdings in Consumer Staples, such as Dino Polska and Walmart de Mexico, and in Consumer Discretionary, namely Allegro. The only relative detractor of note was the Fund's underweight positioning to Financials.
• With the Chinese economy already slowing, and with the memory of regulatory interventions of recent years still fresh, some may view China's attractiveness as a destination for capital as tarnished. While not wishing to downplay these challenges, Walter Scott remains of the view that it is still one of the world's most exciting and dynamic economies, and one that will continue to reward diligent, companyfocused research. Reflecting this view, Walter Scott completed two initial purchases during March; both located in Zhejiang province on China's eastern seaboard, and both exposed to powerful secular tailwinds. Zhejiang Sanhua is the world's leading supplier of valves that control the flow of refrigerant within refrigeration systems. Small and cheap, these valves are essential components in products that are prominent beneficiaries of the global energy transition, including HVAC (heating, ventilation, and air conditioning) and new-energy vehicles. Sanhua's three main products dominate their respective markets, with global market shares ranging from 55% to 70%. Zhejiang Supor is one of China's leading manufacturers of cookware and small domestic appliances. Having started life making goods for other brands, Supor rose to prominence after launching its own product range. With a reputation for quality, safety, and innovation, Supor goods are much sought after by increasingly affluent Chinese consumers looking to upgrade their kitchens.
• Companies are likely to face continued cost pressures throughout 2022, with inflation looking set to remain stubbornly high for some time yet. Add in ongoing uncertainty around the war in Ukraine, the trajectory of the Chinese economy, and the interest rate cycle in the US, and there seems little doubt that further volatility awaits equity markets. Walter Scott's job, as ever, is to remain vigilant to the impact of these risks on the companies in the portfolio to ensure they are not undermining long-term return expectations while remaining alert to the opportunities to which such periods often give rise.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/186112436.pdfJanuary, 2022
The Fund returned -2.28% in January 2022, compared with a return for the Benchmark of 1.24%, with emerging markets, having lagged their developed peers over the last year, encouragingly faring better at the start of 2022.
• January’s sharp rotation away from growth stocks into value stocks reversed a trend that has held sway in most markets in recent years. Financials and Energy benefitted from this environment, while IT detracted most from index performance. For the Fund, the largest relative contributors were holdings in Health Care, namely Grupo Fleury, however these were offset by underweight positioning in Financials; holdings in IT, led by Silergy and Sunny Optical Technology; and holdings in Materials, particularly Hansol Chemical.
• While lagging in January, Naver Corporation and Samsung Electronics exemplify the type of company that Walter Scott believes provide an excellent home for client assets: financially strong, cash generative and well-positioned to capture powerful growth trends and generate sustained growth over many years. In January’s rush to the exits, some investors may have lost sight of the merits of such attributes, but in Walter Scott’s experience, fundamentals are rarely ignored for long. Naver, South Korea’s dominant online search business, delivered robust revenue growth (+27% year-on-year) in the final quarter of 2021. Encouragingly, the growth was well-spread across business lines, with Search, Commerce, Fintech, Content and Cloud all in good health. Korean bellwether Samsung also finished 2021 on a high, with sales for the year rising by more than 18% and operating profit climbing by 44%. Key to this robust performance was heightened demand for memory chips and contract chip manufacturing, while consumer electronics, including the Galaxy smartphone range, were also sought after.
• How long the current market mood lasts will likely depend to a great extent on the ongoing interplay between inflation, inflation expectations, and US Federal Reserve policy. Walter Scott will remain watchful of macroeconomic variables, but the investment team’s focus as ever will be the underlying fundamentals of the companies in the portfolio and how they are performing against an evolving economic backdrop. In that respect, Walter Scott remain optimistic about their long-term prospects.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/184269119.pdfDecember, 2021
The Fund returned 1.37% in December 2021, compared with a return for the Benchmark of -0.65%, amid significant intra-month volatility caused by the spread of the Omicron COVID-19 variant, fears of the reintroduction of economically damaging containment measures, as well as ongoing inflation pressures. • IT contributed most to index performance in December, offset by falls in the Consumer Discretionary and Health Care sectors. For the Fund, the largest relative contributors were underweight positioning in Consumer Discretionary and holdings in the sector, namely Hyundai Mobis, as well as holdings in Consumer Staples, led by Walmart de Mexico. These results were partially offset by underweight positions in Financials and Energy.
• During the month, Walter Scott completed the initial purchases of Polish companies Allegro and Dino Polska, and the final sales of AAC Technologies and Jollibee Foods. With Polish e-commerce penetration still lagging well behind more developed European economies, there is a substantial runway for e-commerce platform Allegro to continue growing its core business at a rapid pace. Allegro has also developed levers beyond the Polish marketplace that should further accelerate overall growth. Dino operates a chain of around 1,600 supermarkets in Poland. The rapid expansion of its store base, using a standardised format, is crucial to the company's ability to grow in rural and suburban areas. AAC Technologies was sold given it has struggled to improve its fortunes over the past three years, having been negatively impacted by pricing pressure from its largest customer, Apple, as well as achieving only mixed success in diversifying into new product categories and end markets. The pandemic has brought significant operational challenges to Filipino restaurant operator Jollibee Foods and given the uncertainty over how long it will take its largest markets to recover, the position was sold
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/183936661.pdfNovember, 2021
The Fund returned 2.88% in November 2021, compared with a return for the Benchmark of 1.61%, with a falling Australian dollar offsetting a sharp dip across several emerging market exchanges driven by the emergence in southern Africa of the new Omicron COVID-19 variant.
• The Omicron variant prompted falls across emerging markets in November, with investors fearing a potential return of restrictions and lockdowns. In this environment, Information Technology and Communication Services contributed most to index performance. For the Fund, the largest relative contributors were holdings in Information Technology, including Leeno Industrial and Sunny Optical Technology, and an overweight to the sector, and holdings in Utilities, such as ENN Energy. These results were partially offset by holdings in Consumer Staples, namely LG Household & Health Care. During the month, Walter Scott completed the final sale of British American Tobacco, to fund investments in new positions.
• Leeno Industrial, a Korean manufacturer of miniature pins and sockets used in the testing of semiconductors, saw operating margins surge to a near-record high thanks to strong momentum in sales of higher-margin integrated circuit sockets. Across its three main product segments, sockets, pins, and medical, third-quarter sales growth was 45% year-on-year. The last of these, medical, is showing the least vigour out of the three, but Walter Scott expect this to pick up as and when COVID-related headwinds abate.
• Any hopes for a sedate end to 2021 have likely been dashed by the emergence of Omicron and until there is greater clarity on its severity, further near-term market turbulence is a distinct possibility. Moreover, a prolonged period of uncertainty in the interim could exacerbate inflationary pressures and supply chain dislocations globally, further testing business models. However, looking across the portfolio, there is ample evidence to suggest that Walter Scott’s investee companies have so far responded well to these challenges, while also exhibiting the dynamism and innovation necessary to capture the wealth of long-term growth opportunities in emerging markets
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/181818331.pdfSeptember, 2021
The Fund returned -4.63% in September 2021, compared with a return for the Benchmark of -2.84%, with events in China surrounding the country’s sprawling real estate sector unsettling emerging markets.
• Across the month, the debt woes of Chinese property developer Evergrande, a sorry saga of overleverage and poor diversification, shone a light on the internal imbalances of the Chinese real estate sector and drove fears of financial contagion. The Consumer Discretionary and Materials sectors fared worst in this environment. For the Fund, the largest relative detractors were an underweight to Energy and holdings in Utilities, such as ENN Energy and China Resources Gas. These results were partially offset by holdings in Industrials, namely Voltronic Power.
• The portfolio saw continued activity in September, including the initial purchase of Hansol Chemical and the final sale of Galp Energia. Hansol, which sells specialty chemicals and materials into various end markets including papermaking, semiconductor, display and electric vehicle batteries, has an excellent track record of growth and margin expansion, driven by the development of high-margin new products. After entering the electric vehicle battery material business in 2018, the company recently announced a large investment into silicon anode capacity, providing further confirmation of the opportunity the company has in battery materials. Walter Scott believes that Galp’s high-quality, low-cost, low-carbon intensity asset base and ongoing investments in renewables can contribute positively to the global energy transition, but with COVID-related headwinds continuing to impact the business, the decision was taken to sell the position.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/180201399.pdfAugust, 2021
The Fund returned 0.50% in August 2021, compared with a return for the Benchmark of 3.21%, with emerging markets moving higher despite concerns around rising cases of the Delta variant and China’s regulatory onslaught.
• The Financials and IT sectors led the market higher in August. The largest relative detractors from Fund performance were holdings in Financials, namely Ping An Insurance, and an underweight to the sector. These results were partially offset by holdings in Health Care, such as Kalbe Farma, and an underweight to Materials.
• August saw an increase in portfolio activity, with Walter Scott completing the initial purchase of AirTAC International and the final sales of Hengan International and Kimberly-Clark de Mexico. AirTAC is a Taiwanese manufacturer of pneumatic components. Growth of the pneumatics industry is underpinned by the ongoing shift towards greater automation of production equipment across a wide array of industries. This trend is particularly apparent in China, AirTAC's primary market of focus, where it has a dominant market share second only to SMC. In terms of the final sales, Hengan was sold as its growth outlook has deteriorated in recent years, and an aggressive shift towards online sales in China, away from Hengan's favoured traditional channel, has eroded its key competitive advantage and introduced new competitors. Hengan has struggled to adapt to these fast-moving changes. The position in Kimberly-Clark de Mexico was sold to make way for a new position in AirTAC international.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/178792963.pdfJuly, 2021
The Fund returned -2.77% in July 2021, compared with a return for the Benchmark of -4.74%, with emerging market equities facing turbulence as further regulatory pressure was placed on a range of Chinese companies. • With the exception of Materials, all market sectors fell in July. The largest relative contributors to the Fund were holdings in Consumer Discretionary, including Ace Hardware Indonesia, and an underweight to the sector. This contribution was partially offset by an underweight to Materials.
• Since the suspension of Ant Group’s IPO last November, China’s authorities have made abundantly clear their intention to intervene in the private sector where and when they believe it necessary. The latest evidence of this more hands-on approach came with the banning of Didi Chuxing’s ride-hailing app over data concerns just days after the company’s US$4 billion IPO in New York. This surprise move was then followed by a crackdown on China’s hitherto booming private tutoring industry. Such government interference in China is a risk of which Walter Scott has long been cognisant and, like all risks, one that is carefully weighed. In Walter Scott’s view, while periodic bouts of regulatory interference can prove disruptive and require close monitoring, responsible companies that operate within the rules and show willingness to work with government when required will continue to thrive over the long-term. Tencent Holdings is an example of a company that has proven adept at responding to shifts in the regulatory landscape, at times moving proactively to align itself with policy objectives. While Walter Scott’s considered approach to investing in China has been at odds with many investors’ wholehearted embrace of more speculative plays, July’s events have prompted a reappraisal of what constitutes an appropriate risk premium when investing in China, to the benefit of the portfolio’s relative performance.
• While Beijing’s current fervour for regulatory intervention has been an abrupt reminder of the prominence of the state in today’s Chinese economy, it by no means renders the country un-investable. Few markets demand such exhaustive research and analysis – a comprehensive understanding of what you’re buying is essential – but China remains home to many high-quality companies exposed to a compelling structural growth story. Disruptive as recent events have been, they have not detracted from the opportunities available to long-term investors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/175738510.pdfJune, 2021
The Fund returned 4.46% in June 2021, compared with a return for the Benchmark of 3.28%, as optimism around central bank commitment globally to ongoing policy support overshadowed concerns over inflation, increased COVID-19 infection rates in some countries and sluggish vaccination rollouts.
• Nearly all GICS sectors moved higher in June, with the sole exception of Real Estate. The largest relative contributors to the Fund were holdings in IT, including AAC Technologies and Sunny Optical Technology. This contribution was partially offset by an underweight to Consumer Discretionary.
• During the month, Walter Scott completed the initial purchase of Guangdong Investment, and the final sales of Coca-Cola Femsa and Want Want China. Chinese conglomerate Guangdong Investment operates property and infrastructure assets primarily in the Greater Bay Area, comprising Hong Kong, Macau and nine major cities in Guangdong, one of China's most prosperous and dynamic regions. Coca-Cola Femsa was sold due to a deteriorating growth outlook. The company's core markets of Mexico and Brazil have some of the highest carbonated soft drink per capita consumption rates in the world, leaving little room for further expansion, and the associated health problems of such high consumption have drawn increased government and regulatory scrutiny, particularly in Mexico. Want Want was sold as the company’s core categories of children's flavoured milk and rice crackers have become increasingly mature.
Although it retains a dominant position in both markets, the children's milk category has been losing share to other sections of the dairy industry as consumers seek healthier products. This has put increased pressure on Want Want's ability to deliver revenue growth.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/174342129.pdfMay, 2021
The Fund returned 1.87% in May 2021, compared with a return for the Benchmark of 2.11%, with emerging market equities rising strongly despite ongoing supply constraints and availability issues regarding the COVID-19 vaccine in emerging economies.
• Most GICS sectors moved higher in May, with the notable exceptions of Consumer Discretionary and Information Technology. The largest relative detractors for the Fund were holdings in Financials, which lagged the rise of the broader sector, as well as the Fund’s underweight positioning. The Fund’s top relative contributors were holdings in Utilities, namely China Resources Gas Group.
• During the month, Walter Scott completed the initial purchase of Leeno Industrial. The company is a market leader in back-end testing consumables for semiconductor chips. Leeno's high-end miniature pins and sockets are used to detect electrical defects at the final stages of semiconductor manufacturing. This attractive niche benefits from secular growth in global semiconductor volumes and rising chip complexity. This, in turn, is underpinned by the proliferation and increasing sophistication of electronics across virtually all industries.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/173009935.pdfApril, 2021
The Fund returned 0.66% in April 2021, compared with a return for the Benchmark of 1.06%, with emerging market equities edging higher as data pointed to a steady improvement in the global economy.
• Sector returns were mixed in April, with Materials, Health Care, and Industrials leading market gains, while Real Estate, Energy, and Utilities moved lower. The Fund’s largest relative detractors were holdings in Communication Services, particularly Tencent Music Entertainment, and an underweight to Materials. These were partially offset by holdings in Information Technology, including Silergy, Koh Young Technology and ASM Pacific Technology.
• While Silicon Valley may hog the headlines as the home of high-profile technology innovation, companies in the Asia Pacific region dominate production of the ‘nuts and bolts’ that help power the tech revolution. Silergy, the Hangzhou-based designer of analogue semiconductors, is one such company, and was the Fund’s top individual contributor to performance in April. The semiconductor industry has been dogged by supply chain issues in recent months, with the automotive industry having to cut vehicle production in the first quarter of 2021 due to supply constraints. Silergy is benefiting from these supply chain issues; in the face of supply constraints, several leading automotive OEMs in Europe, the US, and Japan have turned to Silergy to bolster their supplier base.
These agreements mark Silergy’s first foray into the automotive market and are further evidence of its desire to move up the value chain. In a bullish statement that accompanied a strong set of 2020 results, management said that it expects this trend to continue, with automotive, data centres and 5G all helping to drive future growth.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/171484475.pdfDecember, 2020
The Fund returned 2.22% in December 2020, compared with a return for the Benchmark of 2.51%, with a rising Australian dollar offsetting another exceptionally strong month for emerging market equities. Emerging market indices finished 2020 in a buoyant mood, as the optimism engendered by recent vaccine developments showed little sign of abating despite rising COVID-19 infection rates and renewed measures to tackle the virus in many parts of the world.
Among the largest relative detractors from the Fund’s performance were holdings in Energy, led by CNOOC, which was sold during the month; this was partially offset by an underweight to the Consumer Discretionary sector, which was impacted by the ongoing falls for index heavyweight and portfolio constituent Alibaba Group. It was a month of negative headlines for Chinese e-commerce giant Alibaba Group. After a torrid November in which the company’s subsidiary Ant Group had its IPO suspended, any hopes for some respite in December were soon dashed. Not only was it announced that the company would face an antitrust investigation, but Ant then found itself accused of regulatory failings by the deputy governor of the People’s Bank of China.
As things currently stand, Walter Scott do not believe that these developments undermine the long-term investment case for Alibaba, but a period of uncertainty is likely, and the situation warrants close monitoring. Walter Scott completed the final sale of Chinese oil producer CNOOC in December following reports that the Trump administration was poised to place CNOOC on a blacklist of Chinese firms in which Americans are unable to invest.
While the news was unconfirmed at the time of sale, this directive would have a number of negative impacts, including banning a meaningful group of shareholders from owning the stock; significantly impairing CNOOC's ability to operate certain assets; and potentially posing challenges to its US dollar financing capabilities. Concerns around a lack of transition strategy to a low-carbon economy have also become more pertinent of late.
Whatever the short-term direction of markets, the long-term argument for emerging markets remains very much in place. Favourable demographics, rising disposable incomes and generally lower debt levels relative to their developed markets peers are all powerful tailwinds to growth. This secular story has survived numerous previous crises and should not be derailed by COVID-19, despite its unprecedented severity
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/163537535.pdfasset_class: Foreign Equity
asset_category: Emerging Markets
peer_benchmark: Foreign Equity - Emerging Markets Index
broad_market_index: World Emerging Markets Index
manager_contact_details: Array
ticker: MAQ0651AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
fund_features:
Walter Scott Emerging Markets aims to achieve a long-term total return (before fees and expenses) that exceeds the MSCI Emerging Markets Index, in $A unhedged with net dividends reinvested (Benchmark). The Fund provides exposure to a concentrated portfolio of emerging market equities by investing in securities principally listed in emerging markets. The Fund may also provide exposure to equities where the majority of their business or assets are located in emerging markets but are listed on exchanges outside of the emerging markets (excluding the Australian Securities Exchange).
structure: Managed Fund