AGF Emerging Markets Equity Strategy

Overview

Strategy

The objective of the AGF Emerging Markets Equity Strategy is to outperform the MSCI Emerging Markets Index by 200 to 300 basis points over rolling three- to five-year periods. The strategy is actively managed, all cap, style neutral, and utilizes bottom-up security selection combined with a disciplined Country Allocation Framework to select the stocks within the portfolio.

Philosophy

The AGF Emerging Markets Equity Strategy focuses on economic value added (EVA). We believe this will drive long-term returns while controlling risk, and that companies generating returns in excess of their cost of capital create shareholder value. Our long-term investment horizon approach strives to take advantage of what we believe are short-sighted markets. We believe that markets are short-sighted and the differences between winners and losers become differentiated over time. We analyze existing holdings with a view towards the long term.

The result of our investment process reveals emerging market stocks with strong profitability, resulting in sustainable earnings growth prospects not recognized by the market and selling at attractive valuations which drive our disciplined and diversified portfolio construction process.

Process

Our investment process is based on the concept of EVA, which focuses on finding companies that over time will exhibit characteristics such as strong/growing cash flow generation, sales, margins, and/or asset utilization.

Our process is underpinned by fundamental stock selection and aided by our disciplined country allocation framework, with an awareness of the macroeconomic conditions through country analysis. Our emerging markets universe includes the MSCI Emerging Markets Index and Hong Kong, for a total of 27 countries.

The country universe is scored and ranked for valuations, growth/sentiment, and risk. A minimum market cap of US$500 million is applied in the security screening process. The remaining universe is then ranked based on historical and prospective valuation, growth, and sentiment characteristics.

We apply an EVA screen to the resulting universe to uncover companies that have the ability to generate a return on investment that exceeds the company’s cost of capital. From there, selected names are reviewed using in-depth fundamental analysis to uncover companies with strong businesses and management, unrecognized growth potential, and attractive valuations. The portfolio manager imposes disciplined controls at the country, sector, company, and portfolio level. 

Investment Process