The US market is drawing the attention of investors attracted to the prospect of lower corporate tax and less regulation. However, investors considering entering the US market are facing a challenge; the S&P’s average PE is 22.7x almost at peak levels over 10 years. Additionally, there is uncertainty over the nature of the tariffs that have been promised by the Trump administration and their impact on US companies, inflation and the overall economy. It is worth considering diversification opportunities and a Global Emerging Market mandate is a good candidate.
Aubrey’s GEM Strategy aims to find the best 30-40 quality growth stocks in Emerging Markets finding many growth opportunities off index (active share of 80-95%), and it has beaten the index by 145% since 2012. Our fundamental bottom-up approach that factors in macro head and tail winds enables a dynamic approach to EM recognising opportunities that exist in diverse and inefficient markets.
We believe the Indian growth story is excellent, with continued long-term potential and 41% of our Strategy is invested there. While the recent corporate reporting period was disappointing for the index, our portfolio holdings printed good numbers and have continued to deliver relative outperformance against the index. Our fundamental bottom-up process leads us to select stocks that benefit from the long-term secular growth of consumption in EM and India’s rapidly growing population with growing demand for goods and services is providing a broad range of stocks to select from. Additionally, India is a relatively uncorrelated market from the rest of the EM and less exposed to the impending tariffs from the US as they do not have a major trade deficit like China, Mexico or the EU. We are not, however, relying on the positive macro-outlook in India and stock selection is key as shown by the outperformance of our Indian holdings against MSCI India.
China is a more challenging place to invest with the impact of COVID lockdowns, business regulations and the property crisis weighing on the confidence of corporations and consumers. Tariff frictions with the US are an additional uncertainty to consider. Our preference for domestic champions in EM leads us to companies that are less likely to be directly exposed to tariffs and there are excellent opportunities to be found in China if you are selective. For example, Trip.com, Xiaomi and Meituan are up over 50% YTD. A full recovery of confidence in the Chinese market rests on the resolution of the structural issues faced by the property sector. While unlikely in the short/medium term, the government is adding measures to support the economy, the latest of which caused a considerable bounce in Chinese stocks in September. We remain selective and cautiously optimistic on China with around 25% of the portfolio invested there with the latest corporate reporting from our holdings meeting or beating expectation.
Our global coverage and bottom-up process has enabled us to find high quality companies in Brazil, South Africa, Taiwan and Indonesia where well run, growing companies generating good numbers at attractive valuations can be found. In addition to the high minimum fundamental requirements and attractive valuations we look for catalysts that enable companies to provide good returns for our investors. The Aubrey Global Emerging Markets Strategy is printing good numbers both YTD and MTD, in both relative and absolute terms, while our forecasts assume an average earnings growth of 30% for the portfolio in 2025. We welcome any questions about our Strategy and look forward to engaging with investors on our philosophy, process and outlook.
Disclaimer
This is a marketing communication issued by Aubrey Capital Management Limited, which is authorised and regulated by the Financial Conduct Authority and registered as an Investment Adviser with the US Securities & Exchange Commission. All figures are presented net of fees in USD. MSCI Emerging Markets Index is used for comparative purposes only. Investment returns may increase or decrease as a result of currency fluctuations. Past performance is no guarantee of future results. Aubrey Capital Management has taken reasonable care to ensure the accuracy of this information at the time of publication but it is subject to change without notice and it does not in any way constitute investment advice or an offer or invitation to deal in securities.
GIPS: The Aubrey Global Emerging Markets Institutional Strategy is composed of a number of publicly available funds committed to the strategy (a Luxembourg SICAV, a UK OEIC and a US Commingled fund) together with a number of separate accounts managed likewise (“the EM Accounts”). All the EM accounts included have been taken into account in the calculation of the composite numbers on which the EM GIPS Reports is based (“the Composite”). All performance is reported in US Dollar ($).
Aubrey Institutional claims compliance with the Global Investment Performance Standards (“GIPS®”) and has prepared and presented this report in compliance with the GIPS standards. GIPS is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To obtain a GIPS Composite Report, please call +44(0)131 226 2083 or email us at clientservices@aubreycm.co.uk. Aubrey Institutional Fund Division (“Aubrey Institutional”) is a division of Aubrey Capital Management Limited, which is an investment manager authorised and regulated by the Financial Conduct Authority (Reg. No. 455895) and is registered as an investment adviser with the U.S. Securities and Exchange Commission. The Aubrey Institutional Fund Division Investment Strategies are managed by the institutional investment team within Aubrey Capital Management Limited. Excluded from this definition of Aubrey is Aubrey’s Wealth Management division which provides bespoke managed account portfolio services for individual private clients.
