Fund Profile

Templeton Emerging Markets 07 December 2023

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This is a non-independent marketing communication commissioned by Franklin Templeton. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Templeton Emerging Markets (TEM) is well-established, having launched in 1989. It’s the largest and most liquid investment trust in the emerging markets sector, providing access to some of the world's fastest-growing economies. Managers Chetan Sehgal and Andrew Ness seek out companies that can deliver long-term sustainable growth and aim to buy them when they are trading below fair value. The portfolio is well-diversified across regions and sectors, and offers a broad exposure to emerging markets. In our view, this positions TEM well as a core long-term allocation to these markets, while offering diversification to a broader portfolio focused on developed markets.

Over the last 12 months, TEM’s outperformed the index, driven by a number of well performing stocks (see Performance section), including POSCO, which they sold following an increase in valuation. Given recent market volatility, valuations have largely fallen across the market, so the managers have taken advantage by investing in companies in some secular growth areas, like financials and renewable energy.

TEM trades on a double-digit discount, which at the time of writing is 13.9%. We note that the discount has tended to narrow when sentiment improves towards emerging markets, which could contribute to shareholder returns, if it were to repeat. TEM has been awarded a Kepler Income & Growth rating for 2023.

Analyst's View

An allocation to emerging markets offers exposure to incredibly diverse economies, which in general have some very attractive characteristics, such as fast economic growth, low debt, large consumer bases and vast resources. These features can mean greater potential for earnings growth. At present, we think this diverse set of countries looks attractive thanks to this earnings potential and to low valuations. While there are risks involved in an allocation to EM, we think the return potential looks attractive from here, and for investors with an appetite for risk they could be a valuable addition to a portfolio.

TEM, in our opinion, is a good way to access these markets, and is well suited as a core investment for investors wanting long-term exposure. We believe the managers’ experience, along with the depth of resource available from the on-the-ground emerging markets equity team, gives TEM an advantage over peers in the sector. Meanwhile their measured, long-term investment approach should allow them to look through short-term market noise, capitalise on long-term secular growth trends and focus on adding meaningful levels of alpha through stock selection.

TEM’s current double-digit discount, in our opinion, adds to the attraction, particularly given the cheapness of the underlying markets, and could act as an extra kicker to shareholder returns once sentiment decisively improves towards emerging market equities. There are still challenges for the global economy, which could see discounts widen, but in our view, if global investors are prepared to look through periods of above-average stock market volatility, they may benefit from the differentiated source of returns from TEM’s broad exposure to emerging markets.

Bull

  • Benefits from a very large and well-resourced team offering good coverage of the market
  • Given the managers’ balanced approach, it should be less exposed to style rotations than many in the sector
  • Emerging market valuations look attractive versus developed markets

Bear

  • Political risks remain high in many key markets, such as China
  • Discount could persist or widen if investors’ risk appetite remains weak
  • Large cap focus means small caps or frontier markets are unlikely to make up meaningful positions
Continue to Portfolio
2024 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth... Find out more

Fund History

24 Jun 2024 Fund Analysis
TEM’s board has announced four key initiatives aimed at narrowing the discount…
17 Apr 2024 Pretty, pretty, pretty good
Do investment trusts really protect capital and income against inflation? Let's take a look…
27 Mar 2024 Seoul searching
South Korea is looking to tackle its ‘discount’ versus other Asian countries by introducing governance reforms, just like Japan's…
02 Feb 2024 Extra chips with that please
We take a closer look at the booming semiconductor sector and how investors can tap into its growth potential….
17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
07 Dec 2023 Fund Analysis
TEM offers broad exposure to the growth potential in emerging markets…
20 Sep 2023 Five questions about emerging markets
We track key developments in the diverse emerging markets universe…
30 Mar 2023 Fund Analysis
TEM offers broad exposure to the growth potential in emerging markets...
03 Feb 2023 Room for cautious optimism in emerging markets?
A weaker dollar may mean a better 2023…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
10 Nov 2022 Light at the end of the tunnel
Our speakers struck an optimistic note this week as we considered the prospects for investors at the end of a difficult year…
10 Nov 2022 Slides and Audio: Templeton Emerging Markets
Download the presentation and listen to the audio from our webinar from 7 November...
13 Jul 2022 Ready player one
We wonder where, if anywhere, should investors look for returns after a tumultuous first half of the year…
06 Jul 2022 Fund Analysis
A tough year so far but well-positioned for future growth...
30 Oct 2019 Fund Analysis
TEM has seen a rebound in performance since a change of approach…
10 Oct 2018 Information overload
Our analysis shows the long term case for emerging markets remains largely unaffected by much of the negative newsflow surrounding the sector...
09 Oct 2018 Fund Analysis
Templeton Emerging Markets aims to maximise total returns over the long run with a value-based, bottom up approach...
22 Mar 2018 Fools rush in
The strong performance of emerging markets has seen investors flooding into ETFs, but the evidence shows that active managers produce far better results...
19 Jan 2018 Full steam ahead?
Jupiter Fund of Investment Trusts manager Richard Curling gives his view on the potential risks and rewards for the major equity regions around the world in 2018...
12 Jul 2017 Fund Analysis
A value focused investment trust which has historically performed better during periods when emerging market equities have rallied...
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