Finding sustainability in emerging markets.

Emerging markets represent the majority of the global population and their people are shaping their own destiny.

A majority of the world’s population lives in emerging markets. A well-mapped process for lifting poor economies into middle income ones, has recently delivered annually more new wealth and demand, in absolute terms, than at any other time in history.

Yet still, it is at an early stage. We see decades of growth ahead for companies able to serve large and diverse populations in countries such as China, India and Brazil.

Investments into the future of these countries are generating significant benefits. So why do emerging markets represent only a fraction of the allocation of investor portfolios?

Millions of new middle-income consumers want to live to the max

Incomes in emerging markets are well below those of the developed markets of Europe, the U.S., and Japan. But the people in emerging markets are working hard to close the gap. The sheer population size of these markets creates massive new demand with spending growth that should last not only for years, but also for decades.

Demand starts with simple staples such as toothpaste and shampoo replacing traditional cleaning practices, but is quickly moving up the value chain to electricity, smart phones, healthcare, and credit – alongside the desire for better education and societal stability. The roadmap to prosperity is now in place and structural shifts are driving change.

 

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The result of these structural growth drivers is that larger emerging markets can grow quicker than developed markets, while importantly, their debt still remains at sensible levels relative to their ability to pay.

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How do you get comfortable investing in emerging markets?

Emerging markets are still developing and investor sentiment is often more volatile than in developed markets – but the long-term opportunities do not change with the headlines. Market swings can provide opportunities for experienced active managers, who understand the value of individual companies or bonds, and can selectively take advantage of prices when they become detached from fundamentals.

Some good principles for investing in emerging markets:

  1. Understand what you own – greater conviction is important for long-term investors.
  2. Lengthen your time frame to reduce concerns around market noise – headlines are usually more dramatic than reality.
  3. Remain flexible to deal with fundamental bumps.
  4. Choose managers who have consistently followed an investment philosophy and process that has worked over many years.
  5. Discuss with your managers to understand how they create performance.
26 bn CHF 25+ 47+ 23%

What is an emerging market?

What unites people across emerging markets is their striving for a brighter future, a higher standard of living, and a place at the world’s table. For the first time, for millions of families, it is within their grasp.

A small proportion of the world’s population live in the wealthy developed markets. Emerging market countries cover a broad range – from relatively wealthy countries such as South Korea to earlier stage markets such as Nigeria. An effective path towards economic development was blazed by the Asian Tigers (Hong Kong, Singapore, Taiwan, and South Korea) after the Second World War. This road map has provided lessons that have helped bring better lives to literally hundreds of millions of people over the past 20 years.

There are still significant income and consumption gaps between developed and much of the emerging markets. The Asian Tigers road map showed how important private enterprise is in delivering goods, services, and infrastructure suited to the tastes and needs of local populations, creating jobs, and in turn generating new consumer demand.

These developments need capital to finance their growth and development. For investors there is a significant opportunity to bridge emerging market demand for capital and the need for long-term investment returns.

Our investment teams search the world looking to invest into governments, businesses, and management teams with the potential to deliver economic growth and market leading goods and services to ever wealthier and confident customers across the emerging markets. These growth fundamentals are different to many found within the mature developed markets, which offers opportunities to diversify the portfolio.

Active, bottom-up investment strategies in equities and fixed income

Emerging markets offer significant long-term potential for investors. However, as a result of their earlier stage development and smaller domestic capital markets they are often more volatile than the developed markets. While this can make investors nervous, it also brings opportunities to experienced active investment managers. Our investment teams all employ investment philosophies based on fundamentals that are executed through bottom-up stock or bond selection. 

This approach helps to participate in both the growth opportunities and sentiment driven volatility so often seen in emerging markets.

 

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Vontobel Fund - Emerging Markets Blend

Fixed Income Boutique Emerging Markets Bonds

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Share class Currency ISIN Valor NAV YTD As at
HI (hedged) CHF LU1896847891 44276200 105.54 6.55% 14 Nov 2019
HI (hedged) EUR LU1896847628 44276198 106.04 6.92% 14 Nov 2019
HS (hedged) CHF LU1896848279 44276223 107.04 7.18% 14 Nov 2019
I USD LU1256229680 28772028 151.08 9.81% 14 Nov 2019
PHS (partially hedged) CHF LU2001997159 48077323 96.11 - 14 Nov 2019
Vontobel Fund - Emerging Markets Corporate Bond

Fixed Income Boutique Emerging Markets Bonds

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Share class Currency ISIN Valor NAV YTD As at
A USD LU2033400107 49240328 101.53 - 14 Nov 2019
AQN USD LU1914926925 44988752 106.56 12.65% 14 Nov 2019
B USD LU1750111707 39897195 109.20 12.08% 14 Nov 2019
HI (hedged) EUR LU1750111533 39898221 104.78 9.73% 14 Nov 2019
HI (hedged) CHF LU1923148958 45490215 108.53 - 14 Nov 2019
I USD LU1305089796 30034517 159.75 12.67% 14 Nov 2019
N USD LU1750111616 39897174 110.25 12.63% 14 Nov 2019
S USD LU2046631813 49663051 100.00 - 14 Nov 2019
Vontobel Fund - Emerging Markets Debt

Fixed Income Boutique Emerging Markets Bonds

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Share class Currency ISIN Valor NAV YTD As at
AH (hedged) EUR LU1482064224 33739112 98.09 7.98% 14 Nov 2019
AHI (hedged) CHF LU1572142336 35836655 99.10 8.19% 14 Nov 2019
AHN (hedged) EUR LU1684196279 38261507 99.70 8.51% 14 Nov 2019
AI EUR LU1086766554 24882764 134.71 15.88% 14 Nov 2019
B USD LU0926439562 21343505 133.64 10.97% 14 Nov 2019
H (hedged) EUR LU0926439992 21343509 120.67 8.03% 14 Nov 2019
H (hedged) CHF LU0926440065 21343526 117.06 7.64% 14 Nov 2019
HI (hedged) CHF LU0926440495 21343537 121.11 8.20% 14 Nov 2019
HI (hedged) GBP LU1700373241 38689213 102.31 9.65% 14 Nov 2019
HI (hedged) EUR LU0926440222 21343536 124.99 8.53% 14 Nov 2019
HN (hedged) CHF LU1683481938 38261772 98.94 8.14% 14 Nov 2019
HN (hedged) EUR LU1683488438 38261771 99.67 8.53% 14 Nov 2019
HS (hedged) CHF LU1627767111 37026687 103.57 8.75% 14 Nov 2019
I USD LU0926439729 21343507 138.74 11.53% 14 Nov 2019
N USD LU0926439646 21343506 138.17 11.48% 14 Nov 2019
S USD LU1171709691 26738515 142.89 12.11% 14 Nov 2019
Vontobel Fund - Emerging Markets Equity

Quality Growth Boutique Emerging Markets Equities

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Share class Currency ISIN Valor NAV YTD As at
A USD LU0040506734 618762 649.87 10.36% 14 Nov 2019
AHI (hedged) EUR LU0858753618 20093377 101.93 8.22% 14 Nov 2019
AN USD LU1233654372 28256244 108.82 11.15% 14 Nov 2019
B USD LU0040507039 618763 787.73 10.36% 14 Nov 2019
C USD LU0137006218 1301503 206.46 9.78% 14 Nov 2019
G GBP LU0863298914 20189827 152.41 10.51% 14 Nov 2019
H (hedged) EUR LU0218912235 2143009 196.37 7.35% 14 Nov 2019
H (hedged) CHF LU0469618119 10765166 102.14 7.12% 14 Nov 2019
HC (hedged) EUR LU0333249109 3813691 176.23 6.82% 14 Nov 2019
HI (hedged) CHF LU0469618382 10765176 124.58 7.92% 14 Nov 2019
HI (hedged) EUR LU0368556220 4289807 129.67 8.20% 14 Nov 2019
HN (hedged) EUR LU1179463556 26913860 104.32 8.09% 14 Nov 2019
HN (hedged) CHF LU1683486069 38261775 92.41 7.83% 14 Nov 2019
HN (hedged) GBP LU1179464281 26915669 108.16 9.31% 14 Nov 2019
HS (hedged) CHF LU0773616858 18423570 127.39 8.83% 14 Nov 2019
I GBP LU0787641983 18667507 163.56 10.16% 14 Nov 2019
I USD LU0278093082 2870698 198.74 11.21% 14 Nov 2019
N USD LU0858753535 20093248 118.90 11.15% 14 Nov 2019
S USD LU0209301448 2035840 389.59 12.16% 14 Nov 2019
Vontobel Fund - mtx Sustainable Emerging Markets Leaders

Sustainable Equities Boutique Emerging Markets Equities

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Share class Currency ISIN Valor NAV YTD As at
A USD LU0571085330 12236105 144.88 14.66% 14 Nov 2019
AH (hedged) EUR LU1725744087 39290530 92.94 11.61% 14 Nov 2019
AI USD LU1609308298 36643668 119.58 15.54% 14 Nov 2019
AN USD LU1683485681 38261784 100.26 15.48% 14 Nov 2019
AN GBP LU1717118191 39078906 100.24 14.12% 14 Nov 2019
ASX EUR LU1964740309 46974193 105.49 - 14 Nov 2019
B USD LU0571085413 12236106 150.30 14.65% 14 Nov 2019
G USD LU1767066605 40236190 93.08 15.96% 14 Nov 2019
H (hedged) EUR LU1646585114 37470435 102.96 11.60% 14 Nov 2019
HI (hedged) EUR LU1650589762 37574631 102.18 12.40% 14 Nov 2019
HI (hedged) CHF LU1550202615 35324235 120.48 12.01% 14 Nov 2019
HN (hedged) CHF LU1725744830 39290546 94.07 12.07% 14 Nov 2019
I EUR LU1626216888 37012594 122.29 20.08% 14 Nov 2019
I USD LU0571085686 12236113 161.58 15.52% 14 Nov 2019
N USD LU1626216961 37012602 120.04 15.49% 14 Nov 2019
N GBP LU1618348582 36844873 120.05 14.13% 14 Nov 2019
S USD LU1572142096 35836106 134.72 16.50% 14 Nov 2019
Vontobel Fund - Sustainable Emerging Markets Local Currency Bond

Fixed Income Boutique Emerging Markets Bonds

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Share class Currency ISIN Valor NAV YTD As at
A USD LU0563307551 12061798 62.17 4.28% 14 Nov 2019
AM USD LU0563307635 12061799 52.62 3.90% 14 Nov 2019
AN USD LU1683487208 38261516 92.19 4.84% 14 Nov 2019
B EUR LU0752071745 18059822 105.75 8.35% 14 Nov 2019
B CHF LU0752070267 18059927 95.36 4.55% 14 Nov 2019
B USD LU0563307718 12061801 93.28 4.28% 14 Nov 2019
C USD LU0563307809 12061803 135.08 3.92% 14 Nov 2019
H (hedged) CHF LU0563308369 12061825 77.90 1.08% 14 Nov 2019
H (hedged) EUR LU0563308443 12061827 82.15 1.42% 14 Nov 2019
HI (hedged) CHF LU0563308799 12061834 82.47 1.68% 14 Nov 2019
HI (hedged) EUR LU0563308872 12061836 83.26 1.93% 14 Nov 2019
HN (hedged) CHF LU1683483470 38261533 90.63 1.57% 14 Nov 2019
HN (hedged) EUR LU1683487380 38261546 91.71 2.01% 14 Nov 2019
I USD LU0563307981 12061804 98.68 4.88% 14 Nov 2019
N USD LU1683483124 38261758 97.48 4.85% 14 Nov 2019

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Emerging Markets

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The US-Chinese trade conflict has become a global worry, but the issue is sometimes blown out of proportion. While emerging-market investors take cover from trans-Pacific gales and local Asian thunderstorms, we stay the course. As stock pickers, we suggest three “gos”: go domestic, go stock-specific, and go cheap.

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