A confluence of factors, including inflationary pressures, tightening monetary policy, weakening economic growth, and intensifying geopolitical unrest, continued to challenge emerging markets (MSCI EM -11.6%) in the third quarter. The Altrinsic Emerging Markets Opportunities portfolio declined 8.2%, outperforming the MSCI Emerging Markets Index by 3.4%, as measured in US dollars. Outperformance was derived from individual stock selection in the financials and consumer sectors, our differentiated and overweight positions in Brazil and Mexico, our underweight exposure to China, and specific stock selection in China.
Uncertainty stemming from inflationary concerns, tightening central bank policies, and prospects of slowing economic activity weighed on emerging markets. Unlike previous drawdowns, emerging market equities fared better than broad markets (MSCI EM -11.4%, MSCI ACWI’s -15.7%). The Altrinsic Emerging Markets Opportunities portfolio outperformed the MSCI Emerging Markets Index in the second quarter by 0.6%, as measured in US dollars. Like most equity portfolios, ours was not immune to the market downdrafts, but we are confident in our positioning and encouraged by the investment propositions offered by a growing number of companies with strong long-term fundamentals and attractive valuations. Key contributors to our relative outperformance included our differentiated exposure to real estate, our overweight position and select investments in India, and our underweight exposures in materials and information technology.
3 min read | At Altrinsic Global Advisors, our emerging markets equity strategy is managed with a bottom-up, fundamentals-driven approach and an objective to identify high quality, underappreciated investment opportunities across the cap spectrum, truly reflecting the DNA of the EM asset class. Today, as we assess how our differentiated perspectives and exposures played out during the first year of our strategy, we find great alignment with our previous views (which we outlined in the September 2021 white paper report entitled Exploring the True DNA of Emerging Markets).
The Altrinsic Emerging Markets Opportunities portfolio finished the quarter virtually unchanged (+0.1%), outperforming the MSCI Emerging Market Index’s decline of 7.0%, as measured in US dollars. Key contributors to our relative outperformance included our differentiated exposure to energy, financials, and communications services companies, our overweight exposure in key Latin American markets including Brazil, Chile, Mexico, and South Africa, and our significant underweight exposure in Russia and China.
Global policy normalization was the key factor driving markets during the fourth quarter. Responses to inflationary pressures have varied, but many emerging markets have been progressive in raising rates. While this weighed on the relative performance of emerging market equities versus global equity markets, it may prove to be prescient. In addition, the more proactive interest rate policies have not gone unnoticed in the currency markets, as the MSCI EM Currency Index remained near its all-time highs.
The Altrinsic Emerging Markets Opportunities portfolio declined by 6.9%, outperforming the 8.1% decline of the MSCI Emerging Markets Index, as measured in US dollars. Positive attribution came from our underweight exposure to China internet and related stocks, our broad overweight in Indian equities, and our differentiated approach to communication services. Significant volatility within emerging markets, driven particularly by its largest market, China, defined the quarter.
12 min read | In this paper, we explore the inherent characteristics of the emerging markets (EM) asset class through an economic lens and discuss the key investment criteria that differentiate emerging markets from developed markets. We also challenge the influence of existing benchmarks, which feature significant concentration problems at both the issuer and country level, on investors’ asset allocation decisions and managers’ security selection.
Emerging market equities trailed developed markets in the second quarter; however, performance varied by individual markets and segments within EM (Chart 1). Regionally, North Asian countries’ mega cap technology stocks came under pressure from sweeping regulations changes, causing weak performance and offsetting strong performance in Latin America and EMEA.