For emerging countries, the first quarter of 2022 was dominated by the war in Ukraine unleashed by Russia. Equities from Russia itself suffered particularly badly. Various index compilers, including MSCI, have removed Russian shares from all their regional indices. At a price of 0, the MSCI Russia index has suffered a loss of 100 percent this year.
When looking back at the first quarter for emerging markets, one cannot escape the situation in Ukraine. The impact of the war unleashed by Russian President Vladimir Putin in his neighbouring country is significant. First and foremost from a humanitarian point of view, but also on the stock exchange consequences did not go unnoticed.
For emerging countries, the direct consequences still seem somewhat limited with a loss of 4.92 percent over the first three months of the year for the MSCI Emerging Markets index. While this is a larger loss than the -2.60 percent for the US S&P 500, it is still somewhat better than the -5.32 percent recorded by MSCI Europe.
Not surprisingly, Russian shares have been hit hardest. After several days of war and heavy price losses, the Moscow exchange closed its doors and trading in Russian shares was suspended on exchanges elsewhere in the world. Several index compilers, including MSCI, have since removed all Russian stocks from its regional indices, including the MSCI Emerging Market index, at the market close on 9 March.
MSCI makes substantial step
Although Russia, with a weighting of approximately 3.5 percent, was certainly not a heavyweight in this index, this still meant a substantial step by MSCI. Especially since the shares were removed at a price of 0. This also has the consequence that the return of MSCI Russia for this year is an unprecedented -100 percent.
For investors in European emerging countries, or Emerging Europe, the consequences were significantly greater, as Russia makes up a much larger part of the index here. Through the end of 2021, the weight of Russian equities was almost 70 percent. Consequently, the MSCI EM Europe index suffered a quarterly loss of over 70 percent.
This week’s Top 5 lists the five best-performing funds, as measured per a distribution fee-free share class available in the Netherlands, in the Morningstar Emerging Markets Equity category based on their performance in the first quarter of 2022.
Nordea 1 - Stable Emerging Markets Equity
The front runner is Nordea 1 - Stable Emerging Markets Equity, which has been managed by Claus Vorm and Robert Næss since its launch in 2011. They are both part of Nordea’s multi-asset team that is responsible, among other things, for managing the stable equity funds range. Vorm is the equity expert within this team. The strategy is based on investing in equities with a lower volatility profile, which should offer protection against price falls. This preference is combined with a focus on quality stocks that quote at an attractive valuation.
The diversified portfolio normally holds about 90 positions and there was not a single Russian stock among them at the end of February, which helped the relative performance. The five best performing stocks in the portfolio are all from South America, with four Brazilian names, CPFL Energia, Bank Bradesco, ENGIE Brasil Energia and Companhia De Saneamento Do Estado De Sao Paulo, and one Chilean, Banco De Chile.
Acadian Emerging Markets Managed Volatility Equity
Runner up is Acadian Emerging Markets Managed Volatility Equity. This fund comes from the stable of Acadian, a fund house that focuses on systematic approaches. The objective of this strategy is to achieve a return that is equal to the market but with a lower level of risk.
The fund is highly diversified with 415 positions at the end of March with only TSMC, Samsung Electronics, Tencent and Etihad Etisalat having a weighting greater than one and a half percent. Among this large number of stocks, only three were Russian: Globaltrans Investment, Novolipetsk Steel and Severstal (pictured). The best performers were three commodity stocks from India, Gujarat Narmada Valley Fertilizers & Chemicals, Vishnu Chemicals and Sharda Cropchem.
Pzena Emerging Markets Focused Value
In third place is Pzena Emerging Markets Focused Value. It is a fund from the stable of the firm founded by Richard Pzena, an American deep-value investor. This fund is led by a team of four: John Paul Goetz, Allison Fisch, Caroline Cai and Rakesh Bordia.
They had assembled a 50-position portfolio at the end of February that included two Russian stocks: Lukoil and Sberbank. This did not cause much damage to relative performance, as the positions were small. Moreover, these losses were compensated by strong performances elsewhere, such as Itau Unibanco, Sasol and Pacific Basin Shipping.
Ronald van Genderen is senior manager research analyst at Morningstar, which analyses and evaluates investment funds based on quantitative and qualitative research. Morningstar is one of Investment Officer’s knowledge partners and ranks five investment funds or providers each week.
This article was originally published on InvestmentOfficer.nl.
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