A Tailored Approach to Emerging Markets

The Emerging Markets (EM) landscape has transformed over recent decades and now presents investors with a compelling opportunity for portfolio diversification and potentially competitive returns. Although China, the world's second-largest economy, holds about 30% weight in the MSCI Emerging Market Index1, other emerging market countries have demonstrated resilience and growth potential. By constructing portfolios to navigate this diverse set of economies, investors can potentially capitalize on opportunities within this asset class associated with specific regions.

Explore our solutions:

AGF Emerging Markets Fund

For investors looking to diversify their equity holdings and participate in the growth potential of emerging markets.

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AGF China Focus Class

For investors seeking a specific allocation to China's equity market in order to better participate in any potential growth opportunities.

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AGF Emerging Markets ex China Fund

A fund offering investors exposure to the growth potential of companies located in, or with significant business interests in, emerging market countries excluding China.

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Capitalizing on Emerging Potential

Emerging Markets is an internally heterogeneous asset class, with managers investing in a diverse set of  up to 24 countries with different macroeconomic and political landscapes. AGF Investments’ Emerging Markets strategies offers investors the opportunity to navigate these complexities with the aim to capitalize on opportunities within this asset class by tailoring their exposure to emerging market countries.

Active Advantage in Emerging Markets

Opportunities and risks in emerging markets evolve over time, and maintaining a static exposure to the index weights of all emerging market countries may lead to suboptimal outcomes. However, an active management approach to this asset class allows investors to uncover potential opportunities while also aiming to effectively managing risks.

For example, the chart below illustrates the annual returns among the largest emerging market countries over time. Looking at the 2019-2021 period, Taiwan stood out as one of the few countries resilient to significant macroeconomic deterioration despite the COVID-19 pandemic. Meanwhile, Brazil experienced substantial negative returns in both 2020 and 2021. Interestingly, the narrative reversed for both countries in 2022, with Brazil leading the list and Taiwan emerging as the weakest performer within the group.

 

Source: Morningstar Direct as of October 31, 2023. Returns represent the MSCI index performance for that country during the period. Past performance is not indicative of future results. One cannot invest directly in an index.

With the pivotal role that country allocation can play in portfolio performance, investors can consider the AGF Emerging Markets Fund.. This actively managed fund focuses on companies we believe are: trading at a significant discount to their earnings potential, possessing strong future growth potential, outstanding management teams, and relative dominance in their respective markets.

Growth Potential

The growth potential of developing countries is one of the core considerations in adding this asset class to portfolios where growth is part of the objective. Going back to the common inception of the indices2 used, the MSCI EM Index returned 7.03% on an annualized basis, surpassing developed markets, represented by the MSCI World Index, which returned 5.72%, as shown in the chart below.

Furthermore, when combining exposures to emerging and developing markets in a portfolio over time, investors would have benefited from a higher return profile than investing in developed markets alone. While this approach leads to a slight increase within a portfolio’s volatility profile, the Sharpe ratio for the portfolio improved with 25-50% increases in emerging markets exposure.

 

Growth of Emerging Markets vs. Developed Markets 

 

Annualized Return Standard Deviation Sharpe Ratio
MSCI World Index 5.72% 12.11 0.36
90% MSCI World + 10& MSCI EM 5.43% 12.11 0.34
75% MSCI World + 25& MSCI EM 5.78% 12.33 0.36
60% MSCI World + 40& MSCI EM 6.10% 12.81 0.38
50% MSCI World + 50& MSCI EM 6.29% 13.25 0.38
MSCI Emerging Markets Index 7.03% 16.66 0.38

Source: Morningstar Direct as of October 31, 2023. Performance returns presented are hypothetical and for illustrative purposes only. It does not represent actual performance nor does it guarantee future performance. Assumptions were made in the calculation of these returns including the use of FTSE Canada 91 day T-Bill Index as the risk free rate in calculating the sharpe ration. Any taxes due, trading costs and other fees associated with the portfolios are not included and trading prices and frequency implicit in the hypothetical performance may differ from what may have actually been realized at the time given prevailing market conditions. One cannot invest directly in an index. 
Sharpe Ratio: Sharpe Ratio characterizes how well the return of a fund compensates the investor for each unit of absolute risk they assume, as measured by the Standard Deviation of the fund. The greater a fund's Sharpe Ratio, the better its risk-adjusted performance has been.
Standard Deviation: A statistical measure of the range/dispersion of a fund's performance. The more variable the returns, the larger the Standard Deviation. When a fund has a high Standard Deviation, it means that its range of performance was wide for the given period, i.e. greater historical volatility. Standard Deviation does not predict the future volatility of a fund.


Long-Term Growth Drivers

Over the last 10 years, emerging markets have had a GDP growth of 4.06%, while developing markets sat at 1.8%, on average. These economies have also seen larger proportions of their populations being lifted out of poverty and moving into the middle classes, boosting consumer spending. Fundamental factors, such as automation, premiumization and consumerism, support the growth story of this asset class going forward.

10 Year Average Annual Real GDP Growth Rate

 

Source: IMF, as of December 31, 2022

Automation

Consumerism

Premiumization

Why AGF for Emerging Markets

AGF Investments’ suite of Emerging Markets funds is designed for investors looking to diversify their core equity holdings and to potentially benefit from the unique exposures and opportunities that Emerging Markets provide when constructing their portfolios. With Chinese companies making up about 30% of the MSCI EM Index4 our Emerging Markets suite offers investors the choice of tailoring their exposure by capitalizing on companies outside China, through specific allocation to China's equity market, or through a blend of quality companies within Emerging Markets.

With over 25 years of international equity experience, Regina Chi is responsible for leading AGF Investments’ Emerging Markets strategies. These strategies apply a disciplined, bottom-up investment approach, aiming to identify quality companies with long-term sustainable competitive advantages and attractive valuations.

Lead Portfolio Manager

Regina Chi
Regina Chi, CFA®
VP & Portfolio Manager
AGF Investments Inc.
VP & Portfolio Manager

Regina Chi has lead responsibility for AGF Investments’ Emerging Markets strategies. She looks for quality companies with fundamental catalysts and long-term sustainable competitive advantages at attractive valuations. Regina is a member of the AGF Investments Asset Allocation Committee, a group of senior investment professionals that meet quarterly to discuss, analyze and assess the macroeconomic environment and capital markets to determine optimal asset allocations. She also serves as co-Chair of AGF’s Diversity, Equity and Inclusion Committee, which develops, creates organizational awareness around and promotes DEI best practices across the firm.

Regina brings more than 25 years of international equity experience to this role. Prior to joining AGF Investments, Regina was a partner at a boutique U.S. investment firm, where she served as portfolio manager for the Emerging Markets and International Value disciplines. She was also head of portfolio management and research as they related to Emerging Markets, Global, International and International Small Cap strategies. Prior to this role, she held senior investment management roles at several large and boutique investment firms in the U.S.

Regina is a CFA® charterholder. She received her Bachelor of Arts in Economics and Philosophy from Columbia University. She is also a member of 100 Women in Finance, an organization working to strengthen the global finance industry by empowering women to achieve their professional potential at each career stage.

Portfolio Manager under AGF Investments Inc. and AGF Investments America Inc.

Investment Team

Stephen Way
Stephen Way, CFA®
SVP and Head of Global & Emerging Markets Equities
AGF Investments Inc.
Andres Perez
Andres Perez, CIM
Portfolio Manager
AGF Investments Inc.
SVP and Head of Global & Emerging Markets Equities

Steve Way leads portfolio management responsibilities for global equity and global dividend mandates at AGF Investments. As the architect of the Economic Value Added (EVA)-based investment process used for these industry-leading mandates, he is supported by a team that uses its collective experience to locate opportunities unrecognized by the market. Steve is a member of The Office of the CIO – a structure within the Investment Management team at AGF Investments. This leadership structure encourages and further embeds collaboration and active accountability across the Investment Management team and the broader organization. He is also a member of the AGF Investments Asset Allocation Committee (AAC), which consists of senior portfolio managers who are responsible for various regions and asset classes. The AAC meets regularly to discuss, analyze and assess the macro-economic environment and capital markets in order to determine optimal asset allocation recommendations.

Steve’s industry experience began when he joined AGF Investments in 1987. In 1991, he established AGF Management Limited’s wholly owned subsidiary AGF International Advisors Company Limited in Dublin, Ireland and ran the operations as Managing Director until 1994.

Steve holds a B.A. in Administrative and Commercial Studies from the University of Western Ontario. He is a CFA® charterholder and a member of CFA® Society Toronto.

Portfolio Manager under AGF Investments Inc. and AGF Investments America Inc.

Portfolio Manager

Andres Perez is a Portfolio Manager of AGF Global Equity Fund/Class and AGF Global Dividend Fund/Class. In this role, Andres works closely with the lead PM to determine overall portfolio positioning. He also engages regularly with the research team to identify new investment opportunities and monitor the fundamentals of existing holdings.

Andres joined AGF in 2013 and has been an integral member of the AGF Global Equity Team. Andres was most recently an Associate Portfolio Manager responsible for coverage of the Industrials sector. Before joining AGF, Andres was a director with the Fundamental Investment Group at UBS, where he specialized in global and emerging market equities as a generalist for the fund. He also has previous experience as a portfolio manager at Citadel Investment Group focusing on global equities and at Moon Capital Management where he ran the global materials book for their emerging markets equity fund. Prior to that, he was Vice-President of Equity Research at Morgan Stanley, focusing on Latin American Materials, and an equity analyst for BankBoston Asset Management based in Brazil.

Andres earned a B.A. in Economics and International Relations from Tufts University and also studied at the London School of Economics. Andres is fluent in Portuguese and Spanish.

Portfolio Manager under AGF Investments Inc. and AGF Investments America Inc.

Supported by 10+ Equity Analysts who maintain global sector coverage

1 As of October 31, 2023
2 December 2000
3 Source: PEW Research Center, 2023
4 As of October 31, 2023

All information is provided by AGF Investments in Canadian dollars as of October 31, 2023, unless otherwise indicated. The performance presented is net of fees. Rates of return for periods greater than one year have been annualized.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The commentaries contained herein are provided as a general source of information based on information available as of October 31, 2023 and are not intended to be comprehensive investment advice applicable to the circumstances of the investor. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and the Portfolio Manager accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.

Holdings are subject to change and do not represent all of the securities purchased, sold or recommended for the portfolio. It should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by AGF Investments.

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AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

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Published Date: December 11, 2023. RO#: 3253551