Emerging Markets Equity Commentary | Q3 2018

Quarterly Letter

The MSCI Emerging Markets Index declined 1.1% as tightening monetary conditions in the U.S., the strong U.S. dollar, political uncertainty, escalating trade tensions, rising inflationary worries, and fund outflows weighed on performance.  The Perterra Emerging Markets Fund, L.P. declined 2.8% during the quarter with relative performance impacted by our holdings in Brazil and not owning Russian energy stocks, which were significant outperformers.  Our Brazilian holdings have solid long-term fundamentals, attractive valuations, and generous dividend yields, but their share prices lagged during this period of pre-election political uncertainty.  Macro fears and trade uncertainty continue to present the greatest risks to emerging markets, but our assessment of company fundamentals remains constructive.  With moderating growth expectations and elevated risk in the markets, we have been adding to stocks with attractive upside while possessing strong underlying balance sheet strength, strong free cash flow generation, and valuation support.