Emerging Markets VALUE funds

[chang]

Copying another post from the "China Drama" thread:

• Yes indeed, SFGIX/SIGIX is looking anemic when MATFX/MITEX is growing 1.5-2% every day.
  
  Here is a CHART showing some EM value vs. EM growth funds. Grantham and others are pumping EM value, it has yet to take off. I have owned some SIGIX for many years, and added to it a few weeks ago -- probably a mistake, as it's up a whopping 0.78% since my purchase.
  
  Fortunately, I own a lot more MITEX (and MIAPX) and APDYX than I do SIGIX.
  
  It's always frustrating when a manager appears to be highly intelligent, and articulates very compelling theses, but simply doesn't perform.
  
  Edit: I examined the chart over shorter periods of 1-3 months, thinking that SIGIX would look better ... it doesn't. Is it time to cut the cord on this thing?

Grantham was pushing EM Value in his latest doom and gloom article. Here's an article from last year about EM Value in general (needless to say, its recommendations fizzled):

Why Value Investing Is Making a Comeback in Emerging Markets

I have generally been a pro-growther when it comes to foreign stocks, largely influenced by my own experience living abroad. Investors outside the US seem only to talk about growth, profit, innovation, new products, market share, etc. I never hear people talk about dividends, buybacks, or any of the value buzzwords. And especially in EMs, growth is kind of the name of the game.

And yet I bought SIGIX a few years ago (and even added recently, actually by mistake, but that's another story) on the strength of Foster's previous success, his convincing commentaries, and Morningstar's and MFO's outpouring of love. SIGIX was actually a solid blend fund when it came out (and later Seafarer introduced a value fund, SIVLX), but now SIGIX and SIVLX are both firmly in value territory.

Is it time to sell this fund and move the proceeds into a conventional FEMKX-type, LCG fund? Or could Grantham (and Arnott, who's also pumping EM Value) be right sometime soon?

[Norbert]

I'm definitely no expert on value investing in Emerging Markets. In fact, I'm not fully clear on what "value" even means. Does the concept mean that a stock is cheap relative to it's potential value? Or, is it more about not being growthy; i.e., paying dividends instead of using cash to grow the business?

Energy and Financial companies are often classified as "value". Both have been clobbered recently by low oil prices and low interest rates. So, these stocks are cheap for very good reasons and may not represent "value" for an investor.

The unattractiveness of oil & gas and traditional finance, combined with low rates, helps explain why money has flowed into tech and innovation ... growthy stuff; and why EM value has fared poorly in recent times.

SFGIX actually doesn't look that bad relative to EM value funds, however I don't recall that it ever intended to be a true "value" fund. If that's true, Foster should be sold. He missed the big picture and should have been more heavily weighted in EM growth.

The bigger question is whether we should even be in EM value. Maybe it's an oxymoron? Maybe EM is more exposed to "value" being a trap?

My only position is in the Matthews China Dividend fund, which has performed OK. I'm thinking that a good analyst should be able to pick sustainable divvie players; and a low interest rate world, these stocks can be attractive.

FWIW,
N.

[chang]

Norbert "He missed the big picture and should have been more heavily weighted in EM growth."

That says a lot. SIGIX is supposed to be "go anywhere" — they even label their holdings as "value", "core" and "growth".

www.seafarerfunds.com/funds/ogi/composition

It seems to me that Foster was investing based on what he believed should be happening, not on what he actually saw happening. Question is, how many mistakes do you allow before you fire him.

[Deleted]

Interest rate in CDs in banks in India range from 3% - 5.8%. I do not see much incentive to risk capital for higher dividends in stocks.

[chang]

The other issue that gently bothers me about Seafarer is manager risk. I have gravitated toward more diversified, team-managed funds (in the case of actively managed funds). I think there are very few consistently reliable investing geniuses, especially in the "value" arena. So many "value" investors seem to carve out a theoretical case for where they should be positioned, and ignore all external signals that suggest otherwise. Bad enough if you're part of a team where many voices are heard, but if you're just one guy.... You see the problem.

Seafarer is kind of a mom-and-pop operation, and while they had a good pedigree and a good start, they have struggled for the last five years to prove themselves.

I suppose the one thing they have going for themselves is a scarcity of peers. Apart from PRIJX (another undistinguished fund), I can't think of many easily accessible EM value funds. Acadian has a quite old fund, AEMGX, but I see that it too has not been blowing any doors off (and at 1.4% ER, is expensive to boot). SSEMX is another one; same comments as AEMGX - meh.

Last example: Vanguard's VMMSX, which is more blendy than value. Impressive management credentials:

Management
~~~~~~~~~~~~~~~~~~~~~~~~~~~
Oaktree Capital Management, L.P.
Oaktree seeks to capture misevaluation of securities caused by investor behavior. Oaktree’s investment process is driven by bottom-up research, which includes extensive travel to meet company management and maintaining in-house models focused on deriving reliable cash-flow projections. Stocks are selected based on a combination of valuation, investment thesis, portfolio construction, and risk management.

Pzena Investment Management, LLC
Founded in 1995, Pzena Investment Management, New York, New York, is a global investment management firm that employs a classic value investment approach. The firm has advised Vanguard Emerging Markets Select Stock Fund since 2011.

Wellington Management Company LLP
Wellington Management allocates the assets in its portion of the fund to a team of their investment professionals, who are primarily Global Industry Analysts (GIAs). The size of each analyst’s subportfolio is roughly proportional to the weight of the analyst’s coverage universe in the fund’s benchmark, the FTSE Emerging Index. Wellington Management employs a bottom-up approach that seeks to add value through in-depth fundamental research and understanding of their industries. The advisor believes that covering the same companies over a period of many years equips the GIAs with comprehensive insight that helps them make better, more timely decisions and produce superior results.

Baillie Gifford Overseas Ltd.
Baillie Gifford invests with a long-term perspective, and has a strong preference for high-quality growth companies with sustainable competitive advantages. The investment process is driven by rigorous, fundamental, bottom-up analysis undertaken by the dedicated emerging markets team. The investment team seeks significant upside in each stock it invests in, and considers sustainable earnings growth and free cash flow growth to be the most important determinants of a company’s prospects.

[anovice]

Four management firms and nine advisors managing $912 million in net assets. Sounds like a few too many cooks. Comparing to Vanguard Emerging Markets Stock Index Fund (VEMAX), both have over 60% of assets invested in China, Taiwan, India, and Brazil, and in that order. Both have the same top three holdings and four out of 10. VMMSX has performed a bit better, but I would pocket the 79 basis point difference in the ER and go with VEMAX if VMMSX interested me.

Personally, I would stick with Foster. Alternatively, look at Matthews Asian Growth and Income (MACSX), the fund he managed at Matthews or Matthews Asia Dividend Fund (MAPIX).

[FD1000]

Feb 16, 2021 7:01:44 GMT chang said:

The other issue that gently bothers me about Seafarer is manager risk. I have gravitated toward more diversified, team-managed funds (in the case of actively managed funds). I think there are very few consistently reliable investing geniuses, especially in the "value" arena. So many "value" investors seem to carve out a theoretical case for where they should be positioned, and ignore all external signals that suggest otherwise. Bad enough if you're part of a team where many voices are heard, but if you're just one guy.... You see the problem.

Seafarer is kind of a mom-and-pop operation, and while they had a good pedigree and a good start, they have struggled for the last five years to prove themselves.

I suppose the one thing they have going for themselves is a scarcity of peers. Apart from PRIJX (another undistinguished fund), I can't think of many easily accessible EM value funds. Acadian has a quite old fund, AEMGX, but I see that it too has not been blowing any doors off (and at 1.4% ER, is expensive to boot). SSEMX is another one; same comments as AEMGX - meh.

Last example: Vanguard's VMMSX, which is more blendy than value. Impressive management credentials:

Management
~~~~~~~~~~~~~~~~~~~~~~~~~~~
Oaktree Capital Management, L.P.
Oaktree seeks to capture misevaluation of securities caused by investor behavior. Oaktree’s investment process is driven by bottom-up research, which includes extensive travel to meet company management and maintaining in-house models focused on deriving reliable cash-flow projections. Stocks are selected based on a combination of valuation, investment thesis, portfolio construction, and risk management.

Pzena Investment Management, LLC
Founded in 1995, Pzena Investment Management, New York, New York, is a global investment management firm that employs a classic value investment approach. The firm has advised Vanguard Emerging Markets Select Stock Fund since 2011.

Wellington Management Company LLP
Wellington Management allocates the assets in its portion of the fund to a team of their investment professionals, who are primarily Global Industry Analysts (GIAs). The size of each analyst’s subportfolio is roughly proportional to the weight of the analyst’s coverage universe in the fund’s benchmark, the FTSE Emerging Index. Wellington Management employs a bottom-up approach that seeks to add value through in-depth fundamental research and understanding of their industries. The advisor believes that covering the same companies over a period of many years equips the GIAs with comprehensive insight that helps them make better, more timely decisions and produce superior results.

Baillie Gifford Overseas Ltd.
Baillie Gifford invests with a long-term perspective, and has a strong preference for high-quality growth companies with sustainable competitive advantages. The investment process is driven by rigorous, fundamental, bottom-up analysis undertaken by the dedicated emerging markets team. The investment team seeks significant upside in each stock it invests in, and considers sustainable earnings growth and free cash flow growth to be the most important determinants of a company’s prospects.

The problems:
1) SIGIX isn't a value fund. SIGIX=Seafarer Overseas Growth and Income Fund
2) I never believed in value but in managers that find great stocks regardless.  Value is defined differently by fund managers.
3) Most lagging managers always have excuses and/or explanations
4) The numbers of managers isn't a guarantee.  PRWCX has one great manager.
5) SIGIX strategy: The Fund seeks to offer investors a relatively stable means of participating in developing countries’ growth prospects, while attempting to mitigate adverse volatility in returns.  PV(Link) for 5 years for SIGIX vs AIA shows SIGIX didn't do a great job to mitigate volatility.  SIGIX SD is a bit better but actually was down more for worse year + Max Draw and why AIA Sortino is better. AIA is not a perfect index but you can't find great match to managed funds anyway. 

Other generic observations:
1)Regardless of age, as a US based investor I wouldn't invest more than 1/3 in international since 40% of the SP500 and 50% of QQQ revenues come from abroad.
2)I would use max 2 international funds.  Maybe MATFX+PRASX.
3)I prefer Asia for the next years as my main region
4) There are not great funds with good performance but also mitigating volatility, maybe PRASX.  See PV(link) 5 years.

[mrbilbobaggins]

AEMGX, which changed to an "investor" class fund is closed to new investors. I bought it back during the 2008-2009 market collapse. It did go up but has fallen behind its competitors.

Here is the March 1, 2020 summary prospectus confirming the same:


www.sec.gov/Archives/edgar/data/878719/000139834420006367/fp0050646_497k.htm

[chang]

Feb 11, 2021 11:45:24 GMT Norbert said:

I'm definitely no expert on value investing in Emerging Markets. In fact, I'm not fully clear on what "value" even means. Does the concept mean that a stock is cheap relative to it's potential value? Or, is it more about not being growthy; i.e., paying dividends instead of using cash to grow the business?

Energy and Financial companies are often classified as "value". Both have been clobbered recently by low oil prices and low interest rates. So, these stocks are cheap for very good reasons and may not represent "value" for an investor.

The unattractiveness of oil & gas and traditional finance, combined with low rates, helps explain why money has flowed into tech and innovation ... growthy stuff; and why EM value has fared poorly in recent times.

SFGIX actually doesn't look that bad relative to EM value funds, however I don't recall that it ever intended to be a true "value" fund. If that's true, Foster should be sold. He missed the big picture and should have been more heavily weighted in EM growth.

The bigger question is whether we should even be in EM value. Maybe it's an oxymoron? Maybe EM is more exposed to "value" being a trap?

My only position is in the Matthews China Dividend fund, which has performed OK. I'm thinking that a good analyst should be able to pick sustainable divvie players; and a low interest rate world, these stocks can be attractive.

FWIW,
N.

I have reread this post of Norbert's several times and have found good food for thought in it. It occurs to me to ask: who looks for value in emerging markets? "Value" in US stocks, sure: just start with specialist value managers/funds like LLPFX or OAKLX—see what they are buying and why (or just buy their funds). Developed foreign markets in Europe? Same thing, just start with Herro/OAKIX or similar funds (LLINX, FMIJX, ...).

But emerging markets? Who is looking for deep value in Indonesia or Bangladesh? Not many people, I conjecture. EMs are where you find explosive growth (or "de-growth" as they say in India). It's no wonder that most EM funds are growthy.

EM value funds might have their day, some day, for a day or two, but I am coming around to the (conventional) viewpoint that I should stick to growth (or even hyper growth) in EMs, and get my value exposure in the US and Europe.

[chang]

Feb 16, 2021 19:42:35 GMT FD1000 said:

Feb 16, 2021 7:01:44 GMT chang said:

The problems:
1) SIGIX isn't a value fund. SIGIX=Seafarer Overseas Growth and Income Fund
2) I never believed in value but in managers that find great stocks regardless.  Value is defined differently by fund managers.
3) Most lagging managers always have excuses and/or explanations
4) The numbers of managers isn't a guarantee.  PRWCX has one great manager.
5) SIGIX strategy: The Fund seeks to offer investors a relatively stable means of participating in developing countries’ growth prospects, while attempting to mitigate adverse volatility in returns.  PV(Link) for 5 years for SIGIX vs AIA shows SIGIX didn't do a great job to mitigate volatility.  SIGIX SD is a bit better but actually was down more for worse year + Max Draw and why AIA Sortino is better. AIA is not a perfect index but you can't find great match to managed funds anyway. 

Other generic observations:
1)Regardless of age, as a US based investor I wouldn't invest more than 1/3 in international since 40% of the SP500 and 50% of QQQ revenues come from abroad.
2)I would use max 2 international funds.  Maybe MATFX+PRASX.
3)I prefer Asia for the next years as my main region
4) There are not great funds with good performance but also mitigating volatility, maybe PRASX.  See PV(link) 5 years.

Thanks, a lot of info here .... my responses:

(1) True, SIGIX is "go anywhere"—they even label their holdings as "value", "core" and "growth" (www.seafarerfunds.com/funds/ogi/composition). But they have been moving toward value ... they hold almost none of the "hot" stocks that all the EM-LCG funds do.
(2) Agreed, "value" has different definitions and approaches
(3) Absolutely. There's always an excuse.
(4) True, but as I said, geniuses are few and far between. I prefer teams, and companies with strong succession planning. It has worked well for VWUAX and VWILX.
(5) It seems to me that many "value" funds say that they aim to reduce volatility and downside performance (but owning "cheap" stocks, hoarding cash, etc.) but in reality this just doesn't hold water. So I don't pay attention to these promises....in fact, I would avoid a manager that stresses these "benefits".

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

(1) I am OK with >30% foreign, for various reasons plus my expectation that the dollar will decline in the next few years.
(2) I own more than two funds. VWILX is my heavy lifter. I also own foreign through VGWAX. Plus a smattering of more targeted foreign funds. It is working well for me.
(3) I agree.
(4) I don't see anything special about PRASX. I own FHKCX, but FSEAX has been excellent, too. FEMKX as well, for that matter.

[chang]

Feb 16, 2021 22:50:12 GMT chang said:

Feb 11, 2021 11:45:24 GMT Norbert said:

I have reread this post of Norbert 's several times and have found good food for thought in it. It occurs to me to ask: who looks for value in emerging markets? "Value" in US stocks, sure: just start with specialist value managers/funds like LLPFX or OAKLX—see what they are buying and why (or just buy their funds). Developed foreign markets in Europe? Same thing, just start with Herro/OAKIX or similar funds (LLINX, FMIJX, ...).

But emerging markets? Who is looking for deep value in Indonesia or Bangladesh? Not many people, I conjecture. EMs are where you find explosive growth (or "de-growth" as they say in India). It's no wonder that most EM funds are growthy.

EM value funds might have their day, some day, for a day or two, but I am coming around to the (conventional) viewpoint that I should stick to growth (or even hyper growth) in EMs, and get my value exposure in the US and Europe.

And would you believe, that today, SIGIX (+1.60%) was the best performer in my portfolio? Just when I had decided to sell. The Lord works in mysterious ways....

[chang]

I went to the D&C webpage to check something about DODIX, and I just happened to see this: www.dodgeandcox.com/EMSF.asp

We anticipate opening the Dodge & Cox Emerging Markets Stock Fund to investors in May, 2021.

STRATEGY [excerpt]:
In selecting investments, the Fund typically invests in companies that, in Dodge & Cox's opinion, appear to be temporarily undervalued by the stock market but have a favorable outlook for long-term growth. Dodge & Cox relies on fundamental research to select investments for the Fund's portfolio, supplemented by financial screening models that help identify companies from within the Fund's investment universe for further consideration by research analysts. The Fund focuses on the underlying financial condition and prospects of individual companies, including future earnings, cash flow, and dividends. Various other factors, including financial strength, economic condition, competitive advantage, quality of the business franchise, and the reputation, experience, and competence of a company's management are weighed against valuation in selecting individual securities. The Fund also considers the economic and political stability of the country where the issuer is located and the protections provided to shareholders. The Fund may invest in companies of any size, including large-, medium-, and small-cap companies.

Anybody interested? Personally I wouldn't be. DODFX is rated ★★ for its last 3Y performance, and has demonstrated (IMO) excess and unwanted volatility. Given the natural volatility and transparency issues in emerging markets, I would be afraid of D&C falling into value traps. I really don't know why D&C is starting an EM fund with so many others out there. I would think a small-cap fund would be more commercially attractive for them.

[xray]

chang,

Interesting but that's all IMHO....

I would not currently invest in any fund [normally] with the market being this high unless something catches my intention [like increasing NAV's, book values, or insider buying] other than mission statements. Normally, new funds, will have "new" managers running those funds and that could work out well and would not represent their sister fund. Investors that many have a interest, may want to follow the NAV's [going forward] and the insider actions before investing....

One single opinion of the many I am sure....

Live Long and Prosper....

[johntaylor]

 

Bought a little of TR's Emerging Mkts Discovery soon after it opened.   Yeung (MA Cambridge) seemed sharp.

AUM up to 1.7 b so apparently some feel value will have its day.

9 percent YTD, with avg ann total return since 2015 11 percent.

[yogibearbull]

www.barrons.com/articles/not-all-value-etfs-are-created-equal-heres-how-to-choose-a-winner-51617363000?refsec=funds

YBB Summary: VALUE is not well-defined and value ETFs vary a lot; M* value category has 200+ ETFs. Diversified value includes RPV, SC RZV. Then there are quality-value VALQ, SC SVAL; momentum-value SPVM, SC XSVM; foreign EFV, SC/MC PDN.

[Deleted]

Last quarter Foreign value did much better than foreign growth. Same is true of EM value vs EM growth as well. I am all in EM growth so missed out.

[mrc]

AVANTIS came up with a EM Value ETF - AVES - AVANTIS® EMERGING MARKETS VALUE ETF - in addition to an International Large Value ETF. Offerings in latter category is quite common, but this is probably the first time I saw an EM Value ETF, though I understand that RAFI Fundamental Index based funds are all value leaning including EM ETF.

[johntaylor]

TR's Emerging Mkt Discovery still up 9%, but AUM gone from 1.7b in April to 3.4b

[chang]

I see SIGIX is basically flat YTD. It did well Jan-June, then gave back all its gains. Good old FEMKX is up 6%. I will review the playing field this weekend and give some thought to a Fosterectomy. He has had plenty of time to show his mettle, and hasn't come through.

[roi2020]

Oct 21, 2021 16:49:44 GMT chang said:

I see SIGIX is basically flat YTD. It did well Jan-June, then gave back all its gains. Good old FEMKX is up 6%. I will review the playing field this weekend and give some thought to a Fosterectomy. He has had plenty of time to show his mettle, and hasn't come through.

I owned SIGIX for several years but eliminated my position since the fund didn't live up to expectations.
To his credit, Mr. Foster is a very good writer!