Page 25 - ARUBA TODAY

BUSINESS Tuesday 30 May 2017
A25

Fund manager Q&A: Emerging markets funds

By ALEX VEIGA price, which often means in companies where we
AP Business Writer small-cap stocks. It is up have a high degree of con-
LOS ANGELES (AP) — In- 22.5 percent this year, ac- fidence that profitability will
vestors have been betting cording to FactSet. be growing on a persistent
heavily on emerging mar- Semple spoke with the AP basis. We have to iden-
kets stocks this year, and about where emerging tify those companies that
the strategy appears to be market stocks are headed. have that structural growth
paying off. Answers have been edited and then have a strong dis-
The MSCI Emerging Markets for length and clarity. cipline about not paying
Investment Market Index, too much for them.
which covers securities Q. Is this a good time to get
across developing nations, into investing in emerging Q: What’s an example of a
is up nearly 16 percent this market funds? company that fits your cri-
year, according to Fact- A: Rather than say this is teria?
Set. Compare that with necessarily a good time, I’ll A: Tencent in Hong Kong. It
the Standard & Poor’s 500 run through four different is an internet company that
index, which is up 7.2 per- things people should be has one of the largest com-
cent. looking at. munities after Facebook.
Fund investors are piling The first is the dollar. A Most of their users spend
in. Through the first four strongly appreciating dol- more than an hour a day
months of this year, net lar is not good for emerging on their properties. That’s a
flows into emerging market markets. It sucks liquidity company which optically
U.S. funds totaled $26.17 bil- out of emerging markets. looks expensive but which
lion, according to Morning- It reduces earnings and we think is justified by the
star. That’s an increase of there’s a translation effect growth of it.
more than 20 percent from of what emerging market
the net flows that went into companies can achieve Q: What sets one emerging
emerging markets funds in and how that’s translated market fund apart from an-
all of 2016. back to developed market other?
Why such a focus on based investors. This photo provided by Van Eck Associates Corporation shows A: If it walks, talks and looks
emerging markets funds? The second is rates. The David Semple. Investors have been betting heavily on emerg- like the index, there’s not
David Semple, portfolio short end of the curve ing markets stocks in 2017, and the strategy appears to be pay- really much reason to look
ing off. Why such a focus on emerging markets funds? Semple,
manager for the VanEck moving up in the U.S. is not portfolio manager for the VanEck Emerging Markets Fund (GB- past them. But our view
Emerging Markets Fund something to be feared. FAX), points to a couple of factors: Better-than-expected earn- very strongly is that the
(GBFAX), points to a cou- Traditionally it’s tied to bet- ings from companies in developing nations and the prospect of index represents, as it al-
ple of factors: Better-than- ter growth prospects. higher short-term interest rates, which traditionally has been a ways does, what has hap-
expected earnings from The third element is, broad- precursor to better growth. pened, not what’s going to
companies in developing ly speaking, politics. We’re (Larry Lettera/Van Eck Associates Corporation via AP) happen. We would argue
nations and the prospect talking about big structural da has moved perhaps to those expectations. strongly that at this juncture
of higher short-term inter- changes which come as away from that, then that’s what is going to happen or
est rates, which tradition- part of the disenfranchise- positive for emerging mar- Q. How do you go about where the success will be
ally has been a precursor ment of lower skilled work- kets. selecting companies for in emerging markets looks
to better growth. ers in developed markets The most important: In the fund? very different from what
“That underpinning in terms in favor of emerging mar- the last four or five years, A: It focuses on compa- the index constituents will
of fundamentals is very ket consumers and middle emerging markets compa- nies with structural growth tell you to invest in now.
positive in terms of the abil- class, who have seen their nies have disappointed in at a reasonable price. By So you have to look for a
ity to sustain what has been incomes go up. But if you terms of earnings. That has that we mean visible and manager that is being ac-
a very good rally so far this see protectionism and changed over the last year, persistent growth. Which tive. And it means basically
year,” Semple says. trade tariffs actually hap- where emerging markets means we steer away from not being beholden to this
His fund focuses on com- pening, then that would companies, on the whole, some of the more cyclical historic construct of what
panies in the developing tend to be a negative for have produced better elements of emerging mar- emerging markets used to
world with potential for emerging markets. So as earnings than expectations kets, like energy or materi- be. Because we’re chang-
growth at a reasonable the administration’s agen- and have certainly lived up als. And we tend to invest ing.