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A Grade Trimark Emerging Markets Class favours growth sectors
8/20/2017 8:48:39 PM
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DUE DILIGENCE
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By Dave Paterson  | Wednesday, August 02, 2017


 

 

Since taking the reins of the Trimark Emerging Markets Class fund in 2013, managers Jeff Feng and Matt Peden have done an excellent job, outpacing both their competition and their benchmark. For the three years ending July 30, the fund delivered an average annual compounded rate of return of 9.3%, while the Dow Jones Emerging Market Total Return Index returned 8.2% in the same period. The fund’s longer-term first-quartile performance earned it the annual FundGrade A+® Award for 2016, with a current monthly FundGrade™ A Grade in June.

A key reason for this outperformance is the disciplined investment process the managers use. This involves finding well-managed, high-quality businesses that have sustainable competitive advantages, and that are trading at a discount to what they believe it to be worth. A typical company in the portfolio will generate significant free cash flow, have strong organic growth rates, and high returns on capital.

Building the portfolio is very much a bottom-up endeavor, and the team is consciously benchmark agnostic. Country allocation and sector mix is largely the byproduct of the security selection process. However, the process tends to favour more growth-focused sectors, such as technology, consumer names, and healthcare.

At the end of June, consumer staples represented 28% of the fund, consumer discretionary 22%, information technology 17%, and financials 16%. Geographically, at the end of June, the fund was heavily weighted to Asian holdings, with 30.4% of the portfolio in Chinese stocks and 11.4% in South Korean issues.

Top holdings as of June 30 included South Korea-based information technology (IT) giant Samsung Electronics Co. preferreds, Ltd., Chinese consumer staples firm Kweichow Moutai Co., UK-based consumer discretionary company Liberty LiLAC Group, Chinese IT firm Alibaba Group Holding Ltd., Brazilian IT firm Cielo S.A.

Volatility for the fund is slightly above the market, with an average 3-year standard deviation of 13.4% to the end of June, and it has outperformed in both rising and falling markets. The managers are patient, long-term investors, with portfolio turnover averaging between 20% and 30% per year.

While recent performance may have been excellent, the portfolio looks nothing like its benchmark, meaning that it is likely there will be a dislocation in performance between this fund and the benchmark. This can be a positive, as it has been in recent years, but could also be a headwind.

Still, for those looking for a well-managed, active, concentrated portfolio of quality emerging markets companies, this is fund is worth your consideration.

Trimark Emerging Markets Class, Series A
Fund company: Invesco Canada
Fund type:
Emerging Markets Equity
FundGrade Rating: A (June)
FundGrade A+ Award:
2016
Style: Large Cap Blend
Risk level: High
Load status: Optional
RRSP/RRIF suitability: Fair
Managers: Jeff Feng since April 2013; Matt Peden since April 2013
MER: 2.80%
Fund code: AIM2143 (front end load)
Minimum investment: $500

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.

 

 
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