Reyl’s emerging markets Citywire A-rated trio have become increasingly defensive in order to counter slowing growth in the emerging markets and have stood firm on bold off-benchmark country bets.
Speaking to Citywire Global, Emmanuel Hauptmann (pictured), who co-manages the Reyl (Lux) GF Emerging Equities fund alongside Thomas De Saint-Seine and Maxime Botti, said they had also rotated their strategy in order to weather volatilty in the markets.
Hauptmann had previously said the team had found attractive propositions in the Asia Pacific region. However, revisions of growth forecasts in this area, in particular, have forced them on to a firmer defensive footing.
‘The fund is certainly more defensive now and it is a response to the revising of growth expectations by analysts,’ he said.
‘Taiwan was the biggest allocation in the middle of last year. It was a positive contributor to performance and the reallocation towards more defensive countries that we carried out over the summer of last year was a positive move.’
Hauptmann pointed to the strength of overweight positions in South Africa and Australia – which were added to earlier this year – as key contributors to the fund’s strong performance despite turbulence in the emerging markets.
‘Since the summer of last year, with the flattening of growth expectations in the universe, we have had strong allocations to South Africa because we have more and more dividend and income names and growth names there relative to the rest of the universe.’
In the fund, South Africa now represents 12.8% of total allocation compared to the MSCI EM (Emerging Markets) TR benchmark allocation which is 8.1%. This is while Australia, which does not feature in the benchmark, makes up 13.9% of the fund.
‘Our growth strategy has rotated towards South Africa and also towards Australia as we trimmed some of the most cyclical exposure we had. We had pretty strong consumer discretionary exposure in 2010 and that has reduced in order to make room for South Africa and Australia.’
On a sector-by-sector basis, the Reyl managers are currently overweight financials, with a number of banks and real estate opportunities being found in the trio’s value bucket.
This is while having strong underweights in both energy and materials. Hauptmann expects these positions to be retained for the near term at least.
‘We would really need strong, positive analyst revisions in the most cyclical sectors in the universe to drop this defensive stance,’ he said.
The three managers operate a blended approach, which sees 60% of names chosen on a valuation criteria, while 20% are growth-based and 20% are dividend or income-based.
The fund has returned 60.4% in US dollar terms since its launch in July 2009. Over the same period, its Citywire benchmark, the MSCI EM (Emerging Markets) TR USD, rose 22.3%.