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view meeting where we finalize our quantification of the issues and whether to buy the stock ,” Fisch says , adding that all four portfolio managers have equal say over portfolio decisions .
The fund typically holds 40 to 80 stocks ; it recently held roughly 60 positions . One of its largest holdings , Ambev S . A ., typifies how the fund ’ s research approach zeroes in on potential candidates .
Ambev is a Brazilian brewer that Fisch describes as the leading beer distributor in Latin America . She notes that the company got quite cheap during the Covid-19 pandemic for various reasons . First , beer sales went down as the economy weakened . At the same time , the cost of inputs — which are priced in dollars — got very expensive and the company couldn ’ t push that through in price hikes because of the weak economy .
Ambev was further hurt by the pandemic shutdown of so many bars and restaurants — the most profitable channels for its products — and the company ’ s increased reliance on beer sales in grocery stores didn ’ t help its margins .
“ The market treated that like it was going to be sustained in perpetuity ,” Fisch says . “ Our job as a research team is to figure out what really is the case and how things will possibly shake out over the short , medium and long term , which is what we ’ re really concerned about .”
After a thorough due diligence process , the portfolio managers determined that Ambev ’ s earnings power would be restored as conditions normalized and that the company ’ s strong balance sheet was a buttress against lean times . And so they added it to the portfolio .
The fund has a low turnover rate of 15 %. Stocks are jettisoned when they reach estimated fair value based on their normalized price-to-earnings multiple .
Down … And Up
Like most funds with solid track records , the Emerging Markets Value Fund hasn ’ t been immune to slumps . In particular , it landed in the bottom quartile in Morningstar ’ s diversified emerging markets category in both 2019 and 2020 .
Fisch explains that 2019 was a year where growth outperformed value by a wide margin . Meanwhile , value investors across the board got a whipping in early 2020 during Covid ’ s apex , which devastated many developing nations before things rebounded during the latter part of the year .
She notes that while the Emerging Markets Value Fund trailed the broad emerging markets index both years , it outperformed the value-oriented emerging markets index . “ We ’ ve outperformed in a very negative environment for value during those years .”
Value investing works in emerging markets , Fisch says , for the same reason it works anywhere : “ Investors are not entirely rational .”
The fund has rallied during the past two and a half years with top-quartile performance , including a sizable win ( on a relative basis ) when it lost only 5.7 % last year while its category lost 21 %, the MSCI Emerging Markets index lost 20 % and the MSCI Emerging Markets Value index lost 15 %. And the fund ’ s year-todate gain of 19 % as of early August had doubled that of its category average .
Fisch attributes the fund ’ s recent run of heady success to its diversification and company-specific stock picking . And she again stresses that value investing works quite well in emerging markets .
“ The reason for that is the same reason that value investing works anywhere , which is that investors are not entirely rational ,” she says . “ In times of emotion you see valuation spreads move in unexpected ways , and you see even more of that in the emerging market space where there ’ s so much more uncertainty and unknowns .”
And that , she emphasizes , is where the opportunity lies .
50 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2023 WWW . FA-MAG . COM