A lack of exposure to energy and commodities has caused Vontobel’s €4.4 billion emerging market equity fund to underperform in the wake of star manager Rajiv Jain’s exit.
Since Jain’s departure at the beginning of March this year the fund has returned 5.2% in euro terms to the end of November.
Its Citywire assigned benchmark, the MSCI Emerging Markets Index, returned 14.8% over the same time period and benefited greatly from the increase in commodities prices and positive development of energy titles.
The MSCI Emerging Markets Index has 7% exposure to commodities, while the fund avoided those names completely.
The duo are focusing on the long-term view and stable performance. As part of this strategy they are trying to avoid betting on the oil price.
Exposure to Chinese internet
Brandsma maintains a positive stance on consumer staples, with about 40% of the fund allocated to the sector. The benchmark in comparison has only 7.4% exposure to consumer staples names.
‘These titles demonstrated a strong performance for many years. However we recognize the danger of high valuations in these names.’
That’s why exposure to consumer staples was decreased and this positioning became more concentrated as a result.
Two main positions of the fund are tobacco companies Brtitish American Tobacco with almost 6% weight and ITC Limited with almost 4% of exposure.
‘We would like to invest in companies, which profits expectations are as predictible as possible. For us it is easier to estimate that in India in the years to come there will be more people who are smoking, than bet on the development of the oil price.'
With Alibaba having a position of 4.8% and Tencent 4.2%, Chinese Internet companies are among the five biggest positions in the fund. Internet companies from China make up about 12% of the fund's composition.
Brandsma said these companies dominate the market in China and their market positioning is protected by the government in the home market. Additionally the companies demonstrate stable growth and have a flexible set-up.
Over the last three years the Vontobel Fund Emerging Markets Equity returned 21.8% till the end of November 2016 in euro terms. Its Citywire-assigned benchmark MSCI Emerging Markets Index returned 18% over the same timeframe.