Templeton Emerging Markets Investment Trust

TCA

I'm thinking about buying Templeton Emerging Markets IT (TEM) to complement my holding in First State Global Emerging Market Leaders Unit Trust. Both LTBH investments.

Anybody care to offer any views on this, as to the fund itself or the timing of my purchase? Re the latter, EM seems to be a bit in the doldrums, so I figure as good a time to buy as any. And it's on a discount of over 9%.

Dr Mobius (sounds like a Bond villain) and his team seem to know their stuff. TEM is 80% large cap (First State 60%) and also offers up some different sector weightings than FS. TEM is weighted more to Asia (67% in total, 28% is China) whereas First State's fund favours more Europe (38%) but is still 43% Asia. Only overlap in holdings between the two is Kasikorn Bank (Thailand) 0.93% and Infosys (India) at 0.44%.

I also plan to buy Aberdeen Asian Income IT and either one or both of Aberdeen Asian Smaller Companies IT and Scottish Oriental Smaller Companies Trust. Again some crossover - 10 stocks in total overlap but all up less than 10% of all the above funds mentioned, which in itself will comprise about 10% by value of my entire investments.

Would be interested to hear any opinions as I don't like the look of much else by way of large cap emerging markets investment trusts. Also willing to hear reasons for unit trust investment in this sector but have as good as persuaded myself against this.

Thanks

Ark_Welder

It is interesting to see that there is very little overlap at the company level between TEM and FSGEML. Even if there wasn't much overlap at the country level, I would have expected to see more within a country. So on that there is an amount of diversity by holding the two funds. A question that springs to mind is whether FS have a specific view on why they hold a lower allocation towards Asia and more towards Europe. If there is, then there is the possibility of somewhat negating their view by going into a fund that weights your holdings back into that area. But this might be a deliberate intention on your part, or you may take the view that it is not so relevant in this case due to the concentration of holdings that TEM has.

Dr.M is in his 70s and there are occasionally questions about how long he will remain working (I include myself having wondered about this), but I have read recently where he said that a colleague of his was doing more of the day-to-day aspects of the job, although he didn't say what those aspects were! Sod's Law dictates that I can't find the article now, either, so I hope that I didn't just dream it.

Regards timing, whatever article you read that confirms your view you will find another that disagrees with it, and sometimes both articles are from the same news agency (I'm thinking about the FT for one). The potential for China to slow further, and the effects of a withdrawal of QE being two that might have a major impact, as per the falls earlier this year just on the possibilities. If you are unsure then you could think about staggering purchases rather than making just the one - what I term 'dolloping' rather than drip-feeding. Something else that may assist are the views of some of the managers of the funds that you either hold or are of interest: their outlook and how they intend to approach it might help you to decide. Hugh Young of Aberdeen having a particular view on not being able to find much value right now.


To me, the benefit of TEM is the small number of holdings. This concentration demonstrates a level of conviction that the fund manager has in their selections. The counter to this, though, is that the holdings have to be in larger companies due to the size of the fund. If we are still in for a period of low/no growth for a while then the manager ought to be able to provide an un-indexed type of return


A reason for holding an open-ended fund in this, or any other sector is that a particular fund provides something that a closed-end fund does not. But what that something might be is a purely subjective opinion. e.g. a few years back I wanted to increase my exposure to the USA but retain an income bias. At that time the majority of ITs in the global growth & income sector were either concentrated on the UK or had more towards EMs (there were no North American Income ITs then), so I opted for M&G Global Dividend, which I still hold.

TCA

Thanks again for an excellent response Ark Welder. The diversity was a plus point in my thinking. I think I'd rather cover all the bases than go with a particular conviction (if one was discernible to my untrained eye). Potentially less rewarding but preferable to me putting my faith in one trust manager with a specific viewpoint.

On Dr.M. I gleaned this from Morningstar:


"Our confidence is due in part to the management team at the fund’s helm. Dr Mark Mobius has been at the firm since 1987 and he has built a strong and loyal team there. It’s a team that comprises more than 30 and is spread globally to enable on-the-ground research. Mobius is assisted in the day-to-day running of the fund by Allan Lam, Dennis Lim, and Tom Wu and in reality those three are making the investment decisions, although Mobius has oversight of these. All three have worked with Mobius for more than 20 years so the origins of his style and process are well and truly embedded in their approach."


So hopefully some continuity when he eventually departs.


I struggle with the timing of purchases but for some reason am more inclined to jump in with the lump sum purchase for this trust, as opposed to my proposed UK growth and income trusts which are all sitting near all time highs. I need to give this more thought as although I don't mind dripping (or dolloping!) into unit trusts, it's not my plan to do so with investment trusts. Too pricey if nothing else.


"the manager ought to be able to provide an un-indexed type of return" - is exactly why I'm shelving my emerging markets index tracker in favour of the above.


Thanks

gadgetmind

TCA wrote: »

Dr Mobius (sounds like a Bond villain)

I hold both TEM and a company called Bilfinger Berger for exactly this reason.

TCA

Ark_Welder wrote: »

Something else that may assist are the views of some of the managers of the funds that you either hold or are of interest: their outlook and how they intend to approach it might help you to decide. Hugh Young of Aberdeen having a particular view on not being able to find much value right now.

Read this today from The Herald:

Aberdeen investors withdraw £3.4 billion - Tuesday 30 July 2013

SHARES in Aberdeen Asset Management resumed their recent downward trajectory after the Scottish fund management house revealed investors have withdrawn a net £3.4 billion of assets amid nervousness about emerging markets.

Asset prices in developing markets were hit in May and June amid fears about the impact of any reduction in the US Federal Reserve's stimulus scheme. This came just as Aberdeen had been seeking to stem flows into its emerging markets funds to stop them being overwhelmed.

Aberdeen saw its assets under management fall further than many expected to £209.6bn by the end of June, against £212.3bn as of March 31 despite obtaining £11bn of funds from two recent purchases. A net £926m was withdrawn from its global emerging markets portfolios although Aberdeen insisted that this was expected after it pushed up charges to restrict inflows earlier this year.

Finance director Bill Rattray said yesterday: "It was a difficult quarter. We never like losing assets. But it was a difficult quarter rather than a bad quarter."

Aberdeen secured nearly £9.7bn of gross inflows during the quarter, down from £13.8bn in the previous three months. Meanwhile outflows accelerated to £13bn for the period, up from £10.5bn in the first three months of the year.

Notably, it was a rare quarter of outflows from Aberdeen's equities business, which lost a net £463m of funds. After recent success in reducing redemptions from its fixed income portfolios, outflows accelerated to nearly £1.4bn in the quarter to the end of June. This compared to £587m in the previous three months.

That Aberdeen lost £10.3bn through market movements, investment performance and foreign exchange surprised some analysts, although Aberdeen put it down to the large emerging market holdings in its global funds.

Chief executive Martin Gilbert said: "We have delivered resilient figures during the third quarter given the volatile global market conditions. Our disciplined investment approach meant a broad range of our products attracted interest from investors, although towards the end of the period outflows increased due to heightened market turbulence. The net outflow also reflects the deliberate steps we have taken to manage the capacity of our Global Emerging Market equity funds for the benefit of existing clients."

However, investors remained worried with Aberdeen's shares falling as much as 3.1% before closing down 5.3p or 1.3% at 402.5p. Aberdeen's shares have fallen 14.5% since June 4 despite a pick-up in the last few weeks.

Mr Rattray said: "We still remain confident in the long and medium term prospects for emerging markets. Some £2.5bn of the net outflows experienced in the quarter occurred in June, Aberdeen reported." Mr Rattray said that in July, fund flows had returned to patterns seen in April and May.

One bright spot for Aberdeen was its Asia Pacific equities business, which stood out with £744m of net inflows. Emerging market debt funds had sold well for Aberdeen earlier this year, but these too suffered from changing investor sentiment with outflows of £242m, against inflows of £543m in the previous three month period. Aberdeen said that net outflows were mainly from lower margin products. This reassured some analysts.

Daniel Garrod, analyst at Barclays said the figures are likely to be taken as "more-resilient-than-expected". He wrote in a note for clients that the institutional bias of Aberdeen's customer base meant that assets are more "sticky" than at other firms.

Glen_Clark

Interesting thread. Templeton has had a fantastic run. But if and when QE is wound down Emerging Markets are expected to drop most as American Investors bring their money back home.
Not easy to make money in China now as they have huge wage inflation, and many competitors are communist state owned . But then its not easy for British Companies to make money in America either as BP and Tesco found out.

sabretoothtigger

drop most as American Investors bring their money back home.

The savings rates in USA is 1% or so
In the world its 20% average and China itself they save 50% of earnings.

USA and dollar is a proxy for others nations like the Saudis who sell oil in that currency, 300m USA people themselves who are not that rich are not the influence on emerging markets its those other nations using dollars I think.
Im still buying emerging market currency bonds, as they are more productive net then dollars which are debt based, dominated by government and supported by other countries for production outside of finance

Glen_Clark

sabretoothtigger wrote: »

The savings rates in USA is 1% or so
In the world its 20% average and China itself they save 50% of earnings.

USA and dollar is a proxy for others nations like the Saudis who sell oil in that currency, 300m USA people themselves who are not that rich are not the influence on emerging markets its those other nations using dollars I think.
Im still buying emerging market currency bonds, as they are more productive net then dollars which are debt based, dominated by government and supported by other countries for production outside of finance

So why did Bernanke's mere suggestion of a reduction in the rate at which QE is increasing cause such a big drop in the Stock Markets - especially Emerging Markets?

sabretoothtigger

Because they have influence beyond their means. My shadow is 12 feet tall, Im a giant till I turn the corner and people realise.

Its the chicken and the egg or some similar paradox, whose more important. I dont think its politics that matters myself

Just trying to buy a bit of commodities ETF though in theory dollar is a far better trend.
My broker is blocking CRBU and XDBC, does any know others to look at ?

grey_gym_sock

sabretoothtigger wrote: »

300m USA people themselves who are not that rich

er .. it's only the richest country in the world! ... i.e. total wealth, not per person.

jimjames

Watching outflows can be one way to look for places with value to invest going forward if you are contrarian. I hold TEM but as it is outside an ISA I've not added as much to it as I might, maybe something I need to remedy if it drops.