Kepler expert review Q4 2023

Summary by Kepler

(extract from the full Kepler Report PDF)

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 and sector comfortably, 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 companies in some secular growth areas, like financials and renewable energy.

TEM trades on a double-digit discount, which at the time of writing (07 December 2023) is 14.1%. 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.

Kepler 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, 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.

This research note has been commissioned by Templeton Emerging Markets Investment Trust from Kepler Partners. The research note does not constitute independent research for the purpose of legal and regulatory requirements and is therefore not subject to the regulatory protections afforded to independent research. In particular, the research note is not subject to any prohibition on dealing and both Kepler Partners and Franklin Templeton, and their respective staff, may have dealt in the securities discussed in the research note.

Individual securities mentioned are not to be taken as advice nor are they intended as a recommendation to buy or sell any investment or interest.

Meet the Team

Unparalleled Emerging Markets Experience

Chetan Sehgal is the lead portfolio manager of Templeton Emerging Markets Investment Trust (TEMIT). He has been a portfolio manager and senior research analyst for TEMIT since 2015. He is also a senior managing director and the director of portfolio management for Franklin Templeton’s Emerging Markets Equity Team.

Chetan was joined by portfolio manager Andrew Ness on 17 September 2018. Andrew is a seasoned investor with over two decades of experience as an emerging markets equity portfolio manager, and a strong alignment with the investment approach and philosophy utilised in the management of TEMIT’s portfolio.