- SGA’s Emerging Markets Growth portfolio returned -18.2% (gross) and -18.5% (net) in Q1 2020 compared to -23.6% for its primary benchmark the MSCI Emerging Markets Index; during the same period the MSCI Emerging Markets Growth Index returned -19.3%.
- The portfolio depreciated in value during the quarter, but generated strong relative returns as markets experienced significant volatility and weakness due to the global spread of the COVID-19 virus.
- Market volatility rose to historic levels a month after markets hit new highs; the increased volatility created opportunities for our approach to growth investing, consistent with the return pattern we have experienced over time.
- Sector allocations contributed significantly to returns due to the portfolio’s lack of exposure to Energy, significant overweights in Consumer Discretionary and Consumer Staples, and an underweight to Financials. Stock selection also contributed positively, driven by selection in Consumer Discretionary, while selection in Consumer Staples detracted from returns.
- A new position in Budweiser APAC was initiated and the portfolio’s positions in Abbott and Shoprite were liquidated. Positions in AIA Group, CP All, Universal Robina, Yum China and others were added to on weakness, while positions in JD.com, MercadoLibre, Sanlam and others were trimmed.
- With a gradual and staggered economic recovery expected across the world, we strongly believe that the superior business quality of our companies (better pricing power, recurring revenues, more predictable earnings growth, strong cash flow generation, and solid management teams) will be rewarded by wary investors in the years ahead.
The opinions expressed herein reflect the opinions of Sustainable Growth Advisers, LP and are subject to change without notice. Past performance is no guarantee for future results. This information is supplemental and complements a full disclosure presentation that can be found with composite performance. The securities referenced in the article are not a solicitation or recommendation to buy, sell or hold securities. This commentary is provided only for qualified and sophisticated institutional investors. SGA earnings growth forecasts are based upon portfolio companies’ non-GAAP operating earnings. SGA Emerging Markets Growth Composite inception is 8/1/2014.
Results are presented gross and net of management fees and include the reinvestment of all income. The Net Returns are calculated based upon the highest published fees. The net performance has been reduced by the amount of the highest published fee that may be charged to SGA clients, 1.1%, employing the Emerging Markets Growth equity strategy during the period under consideration. Actual fees charged to clients may vary depending on, among other things, the applicable fees schedule and portfolio size. SGA’s fees are available upon request and also may be found in Part 2A of its Form ADV. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Upon request, free of charge, SGA can provide a list of all portfolio holdings held in SGA’s Emerging Markets portfolio for the past year. Past performance is not indicative of future results.