Emerging Markets Equity Commentary | Q2 2018

Quarterly Letter

The Altrinsic Emerging Markets Equity portfolio delivered a -5.4% return during the second quarter, outperforming the 8.0% decline by the MSCI Emerging Markets Index as measured in U.S. dollars.  Rising U.S. interest rates, election uncertainties, and escalating trade tensions led to a further market correction and increased volatility.  The dominant themes of the last few years – narrow leadership and tight correlation – have started to weaken, allowing stock selection to add relative value.  However, absolute returns were well below our expectations as macro forces overwhelmed stock-specific factors. Given the ongoing unwinding of the Fed’s stimulus programs, we expect further dislocations in currencies and assets dependent on U.S. dollar-denominated funding.  Regarding trade tensions, while a renegotiated NAFTA agreement is likely, intractable issues such as intellectual property protection and level of state intervention in the economy underlie the dispute with China.  We are not convinced that meaningful progress can be achieved on these fronts, but the fear of unintended consequences and the U.S. political calendar could eventually lead to a temporary truce.  High debt levels, elevated risks from trade tensions, and lofty technology sector valuations contributed to our underweight exposure to China.  We are overweight Latin America where we see improving bottom-up fundamentals with strong valuation support.