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Xavier
Hovasse
David
Young Park
Emerging market equity fund combining a fundamental top-down approach with a disciplined bottom-up analysis
in order to identify the best opportunities within its investment universe by seeking companies offering longterm growth potential and attractive cash generation, in underpenetrated sectors and in countries with healthy
fundamentals. The Fund aims to outperform its reference indicator over 5 years with lower volatility.
Carmignac Emergents was up +10.39% in the first quarter of 2017, compared
with a +9.90% increase in its reference indicator. Emerging market equities enjoyed
a highly favourable environment, with reassuring news from China, a rebound in
emerging world exports and a virtually across-the-board cyclical recovery that shows
every sign of holding up.
Undisputedly, emerging market fundamentals have been steadily improving. In
most emerging economies, manufacturing indicators and surveys like purchasing
managers’ indices have continued on their upward trajectory. In addition, that positive
trend has begun to show in their trade balance as well. The previously observed rise
in the nominal value of emerging market exports has translated into higher export
volumes, confirming the global cyclical upswing we mentioned in our last report. And
our recent trips to China and India provided further evidence of those trends.
China, our primary geographic allocation with 19% of the Fund’s assets, has continued
to post solid economic indicators. And while the state of the economy still isn’t entirely
reassuring, it has ceased to be a cause for alarm. China appears to have staunched the
haemorrhaging capital outflows that had been undermining its balance of payments
for months. Moreover, the depressive effect of recent property-market restrictions has
been offset by the expansionary impact of the many infrastructure projects under way.
The economy still owes a lot of its momentum to an inordinate expansion of the money
supply (with 15% annual growth in total adjusted credit, source: Carmignac), but the
consumer price index indicates a rather modest +0.8% increase that clearly doesn’t
warrant drastic monetary tightening at this stage. Following our visit, we moved to
step up our presence in the country by taking a stake in ZTO Express, the country’s
leading package delivery company, with a 14% market share. Not only is ZTO buoyed
by China’s online shopping boom (a sector that Deloitte predicts will grow 25% in
2017); it is also expanding into rural areas and abroad. Like its direct competitors, ZTO
has its own regional sorting centres and transportation network – but it is not fully
integrated horizontally, leaving initial collection and final delivery of parcels to other
providers. Unlike its peers, ZTO has opted for a strategic alliance (via equity stakes)
with all the local partners who handle “first-mile” pickup and “last-mile” delivery.
We feel that this unique business model, which gives the partners full financial
responsibility, promises to keep this company robust and successful. An impressive
return on equity (33% in 2016, according to Morgan Stanley) and substantial cash-flow
generation make that view all the more compelling.
India, where nearly 15% of the Fund’s assets are invested, seems to have bounced
back from the banknote shortage inflicted by the sitting government a few months
ago. As elsewhere in the emerging world, the country’s economic indicators have
continued to improve, while monetary and fiscal policy has lost none of its nearreligious orthodoxy. The recent regional elections have apparently strengthened
Mr Modi’s party and should contribute to political continuity – a most welcome
development. Our recent trip to India corroborated the improved figures reported
in government statistics, and encouraged us to step up our exposure to the country.
We accordingly acquired a stake in HDFC Bank, a private-sector lender, during the
first quarter. Private-sector banking in India enjoys undeniable structural advantages.
The ratio of private-sector bank lending to GDP is a mere 56% (source: Bank for
International Settlements, 2016), and lending is showing healthy, sustainable growth.
Moreover, private-sector banks have high profit margins. On the other hand, because
the country’s public-sector banks lack the capital required to grant additional loans,
they have only scant prospects for growth. That inevitably sets the stage for a longterm expansion of the as yet small market share going to private-sector banks (just
32% in 2016 according to Bloomberg), making them a lastingly attractive investment
opportunity. With about 6% of the total market for domestic bank loans and advances
(source: Goldman Sachs, 2016), HDFC Bank can look forward to significant growth in
the years to come. Further plus points include exemplary corporate governance and
a return on equity that is virtually unmatched by any other Indian bank (19% in 2016,
according to Bloomberg).
Although diabolising Mexico was arguably Donald Trump’s magic weapon on the
campaign trail, his sabre-rattling has had little actual impact to date. The Mexican
peso admittedly took a beating last year, but it has since recouped part of its
losses, appreciating by nearly 10% in the first quarter against the US dollar and the
euro. Similarly, while the North American Free Trade Agreement (NAFTA) stands
a good chance of being tweaked, the kind of no-holds-barred fight that could do
major damage to Mexico’s economy and exports now looks like a much less likely
prospect. A level-headed, pragmatic approach appears to be winning out over
Trump’s campaign propaganda. This outlook convinced us to raise our stake in Banco
Santander Mexico, which brings our Mexican allocation to 13% of the Fund’s
assets. In Brazil, the economy has continued to recover, as demonstrated by the
country’s near-record trade surplus. We are sticking to our optimistic, yet cautious
stance, particularly in light of the heavy political agenda in the next few weeks when
pension and social security reform comes up for debate in the country’s parliament.
The proposed reform can in fact be considered the cornerstone of a drive for fiscal
discipline that is more vital than ever for Brazil’s public finances. Not only would a
Performance of the fund since its launch
479%
600
500
400
300
129%
200
100
0
02/97
01/00
01/03
01/06
01/09
01/12
01/15 03/17
––– Carmignac Emergents A EUR acc
––– MSCI Emerging Markets NR (Eur)
From 01/01/2013 the equity index reference indicators are calculated net dividends reinvested. ​Past
performance is not necessarily indicative of future performance. Performances are net of fees (excluding
applicable entrance fee due to the distributor).
* Risk scale from 1 (lowest risk) to 7 (highest risk); risk 1 doesn’t mean an investment without risk. The risk category associated with this fund is not guaranteed and may change with time.
Management report
E Q U I T Y M A N A G E M E N T / 27
EQUITY MANAGEMENT
failure to get the bill through almost certainly lead to budgetary drift; it would also
represent a major setback for Michel Temer’s administration. We also expanded our
holdings in Argentina by initiating a position in Banco Macro. With private-sector
lending equal to a mere 15% of GDP (source: World Bank, 2015), the low banking
penetration offers considerable opportunity. Furthermore, Banco Macro’s results
would make many banks green with envy: a 13% net interest margin, a 35% return on
equity in 2016 (sources: Bloomberg, Morgan Stanley, 2016) and, best of all, a 16.4%
Tier 1 equity ratio (source: Bloomberg, 2016).
rationalise capacity – not to mention government stimulus programmes – prices for
fossil fuel and mineral commodities still have the wind in their sales. Macroeconomic
indicators have continued on their upward path almost everywhere. In short, the
economic climate is clearly working to the advantage of emerging market assets –
which in our view are well-poised to reap the benefits.
During the quarter, the main contributors to performance included:
Stocks
In the Europe, Middle East and Africa (EMEA) region, South Africa is still making
front-page headlines. President Zuma has managed to cook up yet another political
drama with a major cabinet reshuffle that hardly bodes well. The ouster of Finance
Minister Pravin Gordhan, the team’s advocate of fiscal orthodoxy, may well open the
floodgates for irresponsible spending – in a country whose public finances are wobbly
enough as it is.
As we anticipated at the end of last year, emerging markets are currently blessed
with sunny economic weather that looks set to continue. The cyclical upswing in
manufacturing activity in both developed and emerging economies has become an
undeniable fact. With the help of the recent OPEC output agreement and moves to
Performance
MercadoLibre, internet, Argentina
+35%
NetEase, internet, China
+32%
58.com, internet, China
+26%
Banco Santander Mexico, diversified bank, Mexico
+26%
Check Point Software, internet, Israel
+22%
Sector breakdown (derivatives excluded) (%)
Geographic breakdown (derivatives excluded) (%)
Information Technology
1.0
2.3
2.1
Europe
North America
9.1
Eastern
Europe
23.9
Financials
51.6
2.4
5.7
7.1
Consumer Staples
6.9
Real Estate
6.3
2.0
Telecommunication Services
5.0
Materials
4.5
Asia-Pacific
Cash, cash equivalents and derivatives
operations
Statistics (%)
1 year
3 years
Fund volatility
13.40
13.21
Benchmark volatility
16.07
14.49
Sharpe ratio
1.01
0.64
Beta
0.77
0.82
Alpha
-0.10
0.01
14.3
Industrials
Africa
Latin America
16.3
Consumer Discretionary
Asia
Middle East
31.0
Utilities
1.6
Healthcare
1.3
Cash, cash equivalents and derivatives operations
5.7
Value at Risk (%)
Fund
Reference indicator
99% - 20 days (2 years)
15.78
14.01
Net currency exposure of Euro share classes (%)
Calculation period: weekly (1 year) and monthly (3 years).
38.4
USD
EUR
Quarterly gross performance contribution (%)
JPY
Equity Portfolio Equity Derivatives
Currency Derivatives
Total
Latin America
11.05
-0.08
-0.05
10.92
Emerging Asia
12.6
0.1
12.9
2,9
Eastern Europe, Middle East and Africa
Cumulative performance (%)
Since
30/12/2016
3
months
6
months
1 year
3 years
5 years
26.7
9.3
10 years
Since the first NAV
Carmignac Emergents A EUR acc
10.39
10.39
6.44
13.20
27.22
21.40
41.25
478.99
MSCI Emerging Markets NR (Eur)
9.90
9.90
12.22
24.89
33.46
26.71
41.98
129.47
Category average*
10.05
10.05
11.26
23.72
31.77
27.60
42.22
227.45
Ranking (quartile)
2
2
4
4
3
3
3
1
From 01/01/2013 the equity index reference indicators are calculated net dividends reinvested. * Global Emerging Markets Equity. P​ ast performance is not necessarily indicative of future performance.
Performances are net of fees (excluding applicable entrance fee due to the distributor).
28 / Management report
CARMIGNAC
FIRST QUARTER 2017
Price in currencies
Cash, cash equivalents and derivatives operations
Cash (including collateral cash from derivative positions)
Equities
North America
494 193 LAS VEGAS SANDS (USA)
% of net assets
71 940 311.93
5.68
71 940 311.93
5.68
1 193 678 223.28
94.32
26 369 589.56
2.08
Consumer Discretionary
57.07
26 369 589.56
2.08
24 946 841.42
1.97
Information Technology
38.46
24 946 841.42
1.97
29 143 319.22
2.30
1.14
Asia-Pacific
693 757 LINE CORP (Japan)
Total value (€)
Europe
856 768 JERONIMO MARTINS (Portugal)
Consumer Staples
16.77
14 367 999.36
710 564 LILAC GROUP (United Kingdom)
Consumer Discretionary
22.24
14 775 319.86
1.17
303 102 269.74
23.95
Latin America
Financials
86.70
17 634 579.78
1.39
3 447 267 BANCO SANTANDER MEXICO (Mexico)
217 544 BANCO MACRO (Argentina)
Financials
9.03
29 104 596.33
2.30
4 529 619 BB SEGURIDADE PARTICIPACOES (Brazil)
Financials
29.20
38 950 121.42
3.08
4 417 342 CCR (Brazil)
Industrials
18.05
23 480 239.45
1.86
3 976 481 CEMEX (Mexico)
Materials
9.07
33 721 361.95
2.66
88.52
18 219 452.82
1.44
220 138 FEMSA UNITS ADR (Mexico)
Consumer Staples
6 188 446 GRUPO BANORTE (Mexico)
Financials
107.66
33 074 105.89
2.61
8 340 137 GRUPO MEXICO SA DE CV (Mexico)
Materials
56.28
23 301 259.94
1.84
211.47
41 823 825.01
3.30
Real Estate
21.00
24 045 771.96
1.90
Utilities
22.95
19 746 955.19
1.56
652 510 201.78
51.56
211 532 MERCADOLIBRE INC (Argentina)
23 065 735 MEXICO REAL ESTATE MGMT (Mexico)
2 921 818 TRANSMISSORA ALIANCA (Brazil)
Information Technology
Asia
484 938 58.COM (China)
Information Technology
35.39
16 045 959.35
1.27
Financials
49.00
34 649 107.31
2.74
Consumer Discretionary
8 625.00
34 214 872.07
2.70
Information Technology
172.52
33 804 112.87
2.67
3 710 022 BHARTI AIRTEL LTD (India)
Telecommunication Services
350.05
18 699 363.02
1.48
5 261 707 BHARTI INFRATEL LTD (India)
Telecommunication Services
325.90
24 690 684.42
1.95
4.49
31 136 170.77
2.46
1 460.15
12 804 968.37
1.01
49.62
16 450 217.54
1.30
276.85
26 535 078.04
2.10
5 877 620 AIA GROUP LTD (Hong Kong)
56 537 999 ASTRA INTERNATIONAL (Indonesia)
209 571 BAIDU INC (China)
57 640 056 DALI FOODS GROUP CO LTD (China)
Consumer Staples
609 061 HDFC BANK (India)
Financials
354 595 HERO MOTOCORP LTD (India)
Consumer Discretionary
6 656 643 ICICI BANK (India)
Financials
1 981 228 INFOSYS TECHNOLOGIES (India)
Information Technology
15.80
29 267 825.16
2.31
1 093 838 KANGWON LAND (South Korea)
Consumer Discretionary
38 200.00
34 934 693.71
2.76
4 309 052 MEDIATEK (Taiwan)
Information Technology
215.00
28 547 496.06
2.26
82 208 NETEASE (China)
Information Technology
284.00
21 828 873.83
1.72
1 646.00
10 917 316.11
0.86
173 000.00
3 993 205.12
0.32
2 060 000.00
88 488 292.32
6.99
355 938 PLDT (Philippines)
Telecommunication Services
27 608 SAMSUNG BIOLOGICS CO LTD (South Korea)
Healthcare
51 958 SAMSUNG ELECTRONICS (South Korea)
Information Technology
4 300 223 SHANGHAI INTERNATIONAL AIR-A (China)
Industrials
29.98
17 489 901.24
1.38
2 421 771 TAIWAN SEMICONDUCTOR (Taiwan)
Information Technology
32.84
74 359 272.25
5.88
4 996 681 TATA MOTORS LTD (India)
Consumer Discretionary
465.85
33 515 674.95
2.65
2 174.70
23 544 087.68
1.86
Industrials
21.48
29 663 229.73
2.34
Industrials
13.09
6 929 799.86
0.55
29 911 667.35
2.36
122.00
8 974 438.86
0.71
2 315.00
20 937 228.49
1.65
13 114 988.05
1.04
13 114 988.05
1.04
114 579 346.16
9.05
102.66
33 008 710.22
2.61
751 904 UNITED SPIRITS LTD (India)
10 179 335 ZHENGZHOU YUTONG BUS CO-A (China)
566 216 ZTO EXPRESS CAYMAN INC (China)
Consumer Staples
Africa
1 054 960 MTN GROUP LTD (South Africa)
129 705 NASPERS LTD (South Africa)
Telecommunication Services
Consumer Discretionary
Eastern Europe
7 087 392 MOSCOW EXCHANGE (Russia)
Financials
111.51
Middle East
343 897 CHECK POINT SOFTWARE (Israel)
Information Technology
25 276 989 EMAAR PROPERTIES PJSC (United Arab Emirates)
Real Estate
7.30
46 970 693.20
3.71
12 541 957 EMLAK KONUT GAYRIMENKUL (Turkey)
Real Estate
2.90
9 338 162.31
0.74
Industrials
6.10
12 625 757.28
1.00
Healthcare
116.62
12 636 023.15
1.00
Portfolio value
1 193 678 223.28
94.32
Net assets
1 265 618 535.21
100.00
8 061 753 ENKA INSAAT VE SANAYI (Turkey)
115 888 TARO PHARMACEUTICAL INDUSTRIES (Israel)
CARMIGNAC
FIRST QUARTER 2017 / 29
EQUITY MANAGEMENT
HOLDINGS CARMIGNAC EMERGENTS AT 31/03/2017