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Fund Profile

Templeton Emerging Markets 30 March 2023

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Templeton Emerging Markets. 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 (LON:TEM) is the largest and most liquid investment trust focussed on emerging markets. Managers Chetan Sehgal and Andrew Ness look for companies which can deliver long-term sustainable growth and aim to buy them when they are trading below fair value. The strategy is designed to deliver alpha through stock selection and is diversified across regions and sectors. This means the portfolio tends to give broad exposure to emerging markets and, in our view, makes it well suited to act as a core long-term allocation to these markets.

The troubled market environment in 2022 saw valuations fall across the market and Chetan and Andrew have been taking advantage, picking up companies in secular growth areas, such as Chinese solar panel supply chain companies and Indian internet players. As optimism returned towards the end of the year, TEM saw some good outperformance versus the benchmark (see Performance). While there has been more activity than usual in recent months thanks to the volatility in markets, the approach in general is long-term, and key positions remain in secular growth areas such as semiconductors, which the managers believe have an excellent long-term growth outlook (see Portfolio). The managers have gearing facilities available to them and tell us they have been waiting for the market to digest any bad earnings numbers before investing them. They expect to do so in the near future.

TEM trades on a double-digit Discount. At the time of writing, it is 13.4%. 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.

Analyst's View

We think that TEM is an attractive core emerging markets investment, which could suit investors looking to take long-term exposure to a diverse investment universe with multiple exciting growth drivers. Despite the volatility seen in the last year or so, high GDP growth and strong technology clusters offer obvious sources of high earnings growth to the companies that can take advantage. Chetan and Andrew’s long-term approach should allow them to look through short-term noise and take advantage of long-term secular growth trends, such as the explosion in the power of semiconductors, which seems likely to gain extra impetus from the development of AI. The large-cap focus, limit on individual active positions and valuation discipline all contribute to what we think is an attractively broad exposure to the emerging markets universe. This affords the managers enough freedom to add material levels of alpha via stock selection.

In the short term, the discount adds to the attractions. In our view, it is hard to predict which way these things will go in the short term and, clearly, there are still challenges for the global economy which could see discounts widen. However, for those who are able and willing to take a long-term view, we think the discount could add an extra kicker to shareholder returns once sentiment decisively improves towards emerging market equities.

Bull

  • A very large and well-resourced team offering good coverage of the market
  • Portfolio aligned with long-term secular growth themes
  • Strategy should be less exposed to style than many in the sector due to balanced approach

Bear

  • Political risks remain high in many key markets, such as China
  • Discount could persist or widen if risk appetite remains weak in markets
  • Large market 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

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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