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Analysis: According to a survey recently conducted by Franklin Templeton, many Canadian investors see emerging markets as the best places to invest in terms of profit potential going forward. If you’re in that group, this is a fund you should look at. Manager Patricia Perez-Coutts is doing a great job with it.
She took over the fund in 2002 after the Charles Brandes organization of San Diego resigned as manager. Brandes used a value approach to stock selection to good effect. But when Ms. Perez-Coutts, who had previously been with Trimark, took charge she repositioned the fund to a blend of value and growth styles with a focus on mid to large-cap stocks.
She got off to a good start but then faltered briefly in 2007 when the fund dropped to the fourth quartile of its peer group. Since then, she has had it back near the top of the heap in its category and the impressive results have earned it a top $$$$ rating. The latest one-year gain (to July 31/10) was 20.8% compared to a 16.1% peer group average. The five-year average annual compound rate of return was 13.9%, also well above the category average. As of mid-year, slightly more than half the portfolio (51.9%) was in Pacific Rim countries, which have been the manager’s favourite hunting ground for several years. Other large geographic holdings were Latin America (23.5%) and Africa/Middle East (12.3%). European exposure was only 7.2% although that continent does have several countries that qualify as “emerging”, notably Russia and the eastern bloc. Sector balance is excellent with 20% of the portfolio in financials, 18% in consumer discretionary, 17.9% in materials, 11% in energy, and 10.3% in consumer staples. Overall, this is a very impressive entry but remember that emerging markets funds are volatile by nature. Don’t hold this if you’re risk-averse.