Manager Update Videos

Hello, I’m Andrew Ness, co-manager of TEMIT.  Over the past 12 months, emerging markets have delivered a wide range of returns, influenced by regional economic conditions, geopolitical events (of which there has been many) and expectations of trade and policy changes to come. And while the asset class has struggled to keep up with a rampaging US equity market, TEMIT has been able to deliver positive returns for shareholders in both absolute terms and against the MSCI Emerging Markets Index.

Despite all the background noise, at Franklin Templeton, stock selection remains at the core of our investment practice and that’s what drives TEMIT’s performance.  Focusing on the last 12 months, we can see that we’ve benefited from our continued holding of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor foundry and our largest single position in the Trust. It remains the market leader from a technology perspective and has a long runway for growth given the ongoing digitalisation of all our lives.

Samsung Life Insurance, Korea’s leading life insurance company, has also performed well, helped by robust operating performance and by expectations of increased returns to shareholders, a common theme in the Korean market where corporate governance trends continue to improve. Elsewhere, we’ve seen significant returns from Brilliance China, BMW’s joint venture partner in China, where, after a difficult period for the company, shareholders are now enjoying bumper dividends - hence the significant total return over the last year.

Another strong contributor to the trust has been Hon Hai Precision Industry, the Taiwanese technology giant, and Apple’s key assembly partner for iPhones. Hon Hai has benefited from the AI boom, through its server relationship with NVIDIA and other large US clients such as Microsoft, Oracle and Amazon. Finally, we’ve seen strong performance from Swiggy, the Indian food delivery platform that was our first private investment in the Trust. Swiggy’s recent IPO (stock market float) is the second largest in India in 2024 and the company has a track record of innovation and strong growth and with the food delivery market in India still in its early stages, the outlook for continued growth remains encouraging. 

From a country perspective our key overweights in TEMIT are in Asia and Latin America; in countries like Korea and Brazil where we find high quality companies trading at attractive valuations. We’re underweight the Middle East, mainly the largest regional market Saudi Arabia as valuations are high and geopolitical tensions remain elevated, which has increased risk premium for the MENA region.  We’re also underweight in China and India given ongoing uncertainty on the economic outlook in the former and the persistence of high valuations in the latter.

And in terms of sector positioning, we are overweight Information Technology, but with a very diversified group of companies ranging from semiconductors and technology hardware manufacturers to software service providers. We’re effectively investing in the enablers of the digital revolution taking place around us.

And we are overweight many of the companies that are disrupting traditional industries – so overweight internet names via e-commerce, food delivery and media and entertainment companies. We also remain overweight in emerging market banks as one way to play the consumer under-penetration story in emerging markets where banks are benefiting from an attractive combination of loan growth, robust asset quality, lower interest rates, and unsatisfied demand for credit products.

Finally, we are underweight energy, utilities and the real estate sectors as we typically fail to find companies in these sectors that offer ‘sustainable earnings at a discount to intrinsic worth’ which remains our core investment philosophy.  Looking at our largest stock exposures, our portfolio continues to reflect a high level of diversity of names by industry, where in our top 20 holdings we have 13 different industries represented, ranging from semiconductors, banks and retailing to chemicals, insurance and media & entertainment.

We also have a good mix of well-known large-cap names: ICICI Bank, one of the largest private sector banks in India; TSMC, the world’s leading semiconductor foundry and some lesser-known names too. For example, LG Corp, a Korean conglomerate with world-class assets in consumer electronics, EV batteries and speciality chemicals. And we also names like Mediatek,  G chip design house, and Samsung Life, the largest life insurance company in Korea.    These companies are all typically leaders in their respective industries, with resilient business models, robust balance sheets and solid profitability that gives them an ability to navigate whatever environment we shall face over the next 12 months and beyond.