REG - TempletonEmerg.Mkt. - Preliminary Statement of Annual Results <Origin Href="QuoteRef">TEM.L</Origin> - Part 2
07/06/2017 14:15
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rigorous fundamental analysis and a worldwide network of experienced research resources. Research
is carried out on a company by company basis - in different countries and industries -to determine what we consider the
economic worth of a company to be, based on many factors including projected future earnings, cash flow or asset value
potential as well as management capability and governance.
The Investment Manager follows a rigorous five step process:
1. Identify Potential BargainsDoes this stock meet TEMG's criteria of valuation,size and liquidity?Is it a potential bargain within the global universe,its sector and on a historical basis? All portfolio managers are also research analysts,resulting in a deep and experienced research team. While our philosophy remains unchanged, continualrefinement and improvement is part of the TEMG culture. TEMG is able to leverage 60+ years of global
investingby Franklin Templeton Investments to build an extensivenetwork of local contacts around the world.
2. In Depth Fundamental AnalysisIs this stock a candidate for the TEMG Action List?Is the stock trading at a substantial discount to whatour research indicates the company may be worth overthe long-term? Within the framework of a disciplined, long-termapproach, analysts look beyond short-term noise toestimate long-term economic worth. Bottom-up fundamental analysis, industry knowledge andaccess to company management drive original research.
3. Review Team EvaluationHas analysis met TEMG standards?Does the recommendation pass the TEMG Review Team'sapproval? A collaborative team culture that leverages theexperience of the entire TEMG produces comprehensiveresearch insights.
4. Allocate PortfolioWhat do we consider to represent the best combinationof stocks for creating a diversified fund with the greatest potential for appreciation? Taking into account the investment objective andguidelines, the portfolio is constructed with attention todiversification and risk levels. The process seeks to reduce portfolio turnover. The fund combines the potential of our best ideas withthe risk
benefits of diversification.
5. Portfolio Evaluation and Attribution AnalysisWhat are the performance contributors/detractors? Portfolios are subject to weekly review, while asemi-annual review evaluates methodology, resources,themes, country level issues and global trends. TEMG investment process combines the benefits ofindividual and team portfolio management.
Investment Risk Management
Investment in emerging market equities inevitably involves risk in a volatile asset class, and portfolios constructed from
the "bottom up" may be exposed to risks that become evident when viewed from the "top down". Franklin Templeton Investments
("FTI") uses a comprehensive approach to managing risks within our portfolios. The goal of our investment risk management
process is not to avoid risk, but to ensure that risks are "understood, intended and compensated". This philosophy is
integrated into each step of the investment process:
Risk management is led first and foremost by experienced portfolio managers. It is integrated within each step of their
fundamental, research-driven process, and includes regular interaction with the independent Performance Analysis and
Investment Risk ("PAIR") team. The PAIR team consists of over 100 investment risk and performance professionals across 20
global locations. PAIR is responsible for the independent preparation and monitoring of risk management information and for
the reporting of any exceptions to senior management and the Board of the Company. A monthly executive risk summary report
is reviewed by FTI's Executive Investment Risk Committee as an input to the senior management reporting process. PAIR also
provides regular performance analysis versus the benchmark and peers to identify absolute and relative performance trends
or outliers. Exposure and attribution analysis is another key measure to support the integration of investment risk insight
into each step of the investment process.
Risk Management Our approach
Recognised• Identify and understand risk at the security, portfolio and operational level PORTFOLIO MANAGERS Dedicated Risk Management Specialists• Provide robust analytics and critical, unbiased insight• Locally positioned to work consultatively with portfolio teams around the globe
Rational• Affirm that identified risks are an intended and rational part of each portfolio's strategy Oversight CommitteesFocus on most complex risk factors:• Counterparty Risk • Pricing and Liquidity• Complex Securities • Global Products
Rewarded• Verify that every risk provides the potential for a commensurate long-term reward Tools and PlatformsCentrally supported, best-in-class platforms for:• Data Analytics and Modelling• Portfolio Compliance• Trade Monitoring and Execution
Building from this philosophy and within the boundaries of the overall investment strategy or potential regulatory
restrictions, the portfolio manager and PAIR will agree upon guidelines that reflect the Company's risk profile.
As part of the ongoing risk management, potential performance in stressed markets or under anticipated scenarios are
assessed and discussed. Using their specific expertise and with an independent view, the PAIR group can provide
risk-related information to the Investment Manager which can provide valuable insight for consideration in the portfolio
construction process.
For additional information with respect to the AIFM risk management framework, visit the Investor Disclosure document on
the website.
Portfolio Report
Market Overview
Emerging markets returned to form in 2016 and, following an encouraging start to 2017, many of the factors that originally
attracted investors to this sector may be coming back into play, including stronger earnings growth, higher economic growth
and robust consumer trends. Even in regions that are still going through adjustment and rebalancing, we are seeing improved
visibility and increasing signs of robust underlying economic conditions such as low debt, stabilising commodity markets,
reduced currency volatility and improving consumer confidence. Growing scepticism surrounding the timing and the extent of
US President Donald Trump's ability to enact a pro-business agenda was also countered by positive sentiment following
signals from the Trump administration of potential moderation from its earlier protectionist stance on trade.
While TEMIT's NAV benefited in sterling terms from a reduction in the exchange rate following the decision to leave the EU,
we believe that the long term impact of Brexit on emerging markets will be limited. Generally speaking, emerging markets'
trade and investment is widely diversified and the amount of trade with the United Kingdom is relatively small for most
emerging market countries.
The general landscape of emerging market corporations has undergone a significant transformation from the often plain
vanilla business models of the past (tending to focus on infrastructure, telecommunications, classic banking or
commodities) to a new generation of innovative companies that are moving into technology and higher value added goods and
services. The information technology ("IT") sector represents over 24% of the MSCI Emerging Markets Index: in fact, the top
four constituents by weight are IT companies (as of March 2017). Further, this is a larger weighting than information
technology's proportion of the United States index. In comparison, in 2008, IT companies represented about 7% of the MSCI
Emerging Markets index. Furthermore, we are starting to see the establishment of globally represented brands originating
from emerging market countries.
The performance of emerging market currencies against the US dollar varied over the reporting period. The Mexican peso
plunged to a record low against the US dollar in November but then recovered slightly to end the 12 month period down about
10%. Geopolitical issues weighed on the Turkish lira, which was down about 30% against the US dollar. The Russian rouble,
Brazilian real and South African rand, however, strengthened. Waning confidence in the ability of the US government to
stimulate growth or impose trade sanctions led investors to adopt a weaker view on the US dollar in the latter part of the
year.
China's economy remains on a fast growth trajectory and is expected to grow by 6.5% in 2017. Chinese stocks rose over the
12 month period, despite a decline in late 2016 caused by the Chinese renminbi's depreciation and concern over potential
protectionist policies from the incoming US presidential administration. Chinese internet stocks, in particular, came under
pressure. The Chinese government, however, remains focused on its "Internet Plus" strategy, where the internet sector will
play a key role in fuelling China's next stage of economic growth. There are numerous opportunities for companies to expand
locally, especially in attracting consumers from rural areas, where more than 40% of the population resides. Since the
sell-off, valuations also became more attractive, leading TEMIT to invest in select internet related stocks.
South Korean equities performed better than their emerging market peers, driven by strong performance in IT companies.
After growing 2.8% in 2016, the Korean economy is forecasted to expand by 2.7% in 2017. An accommodative monetary policy
and reform implementation have further supported the economy and stock market. Politically, however, President Park
Geun-hye was impeached and subsequently arrested over her alleged connection to a corruption scandal which is also said to
include major listed companies. While this event resulted in increased uncertainty in the interim, over the longer term the
investigation could lead the government and corporates to address some of the concerns around corporate governance and
reforms, which would be in the interest of all shareholders.
A robust performance in the IT sector also drove performance in Taiwan, with the MSCI Taiwan Index reaching a 5-year high
in March 2017. Momentum in the equity market was supported by solid demand for smartphone and personal computer components.
Taiwan's first quarter GDP growth exceeded expectations at 2.6% year on year, supported by domestic consumption and an
increase in exports, compared to a 1.2% increase for 2016 as a whole.
Brazil stood out with a strong performance over the year as an expansionary monetary policy, approval of key reforms,
appreciation in the Brazilian real, an improvement in business sentiment and generally positive economic data drove
investor sentiment. Although we reduced our positions in Brazilian banks to diversify our holdings, we remain well
positioned in financials as well as consumer related stocks in the country. Financial stocks are benefitting from positive
sentiment towards the reform process. Banks are showing signs that the worst of the provisions for bad loans have been
completed and we believe that we could see improved asset quality in 2017. In the consumer space, we continue to favour
companies with low ticket cash sales that may be able to weather the weak consumer environment and whose balance sheets
could benefit from the potential for a further decline in interest rates during 2017.
The uncertainties created by the new US administration in late 2016 led to lower valuations in Mexico, providing long-term
investors such as TEMIT an attractive entry point. In our view, the valuations of both Mexico's currency and stocks are
compelling as country risk is falling and unemployment remains at decade lows. Inflation expectations, however, continue to
be revised upwards and consumer confidence remains depressed. We believe that the financial sector looks attractive, with
sound asset quality and structural growth opportunities. The Mexican industrial sector is also globally competitive and
trading at low valuations. We are also monitoring other sectors, including the consumer sector.
Several economists trimmed their 2017 GDP growth forecasts for India, expecting a temporary negative impact on consumption
from cash shortages resulting from a surprise move to withdraw large denominated currency notes from circulation in late
2016. However, growth is still expected to be 7.2% in 2017 and accelerate to 7.7% in 2018, making India one of the fasting
growing major economies in the world. The country also recorded better than expected fourth quarter 2016 GDP growth of
7.0%. We continue to favour companies that we feel are well placed to benefit from higher per capita income and growing
demand for goods and services, which, in turn, should support the earnings growth outlook for those stocks.
The Russian economy is expected to return to growth in 2017, after two consecutive years of contraction, supported by a
rebound in oil prices coupled with recoveries in mining, manufacturing and agriculture. Energy, financials and IT companies
continue to look attractive due to their appealing valuations. Higher oil prices and technological developments could
further support the earnings recovery of these sectors.
Portfolio Report (continued)
Performance Attribution Analysis %
To 31 March 2017 1 year
Total Return (Net)(a) 47.8
Expenses(b) 1.2
Total Return (Gross)(c) 49.0
Benchmark Total Return(d) 35.2
Excess Return(e) 13.8
Stock Selection 13.7
Sector Allocation 0.1
Currency 0.2
Residual(f) (0.2)
Total Portfolio Manager Contribution 13.8
Source: FactSet and Franklin Templeton Investments.
(a) The NAV return inclusive of dividends reinvested.
(b) Expenses incurred by the Company for the year to 31 March 2017.
(c) Gross Return is Total Return (Net) plus expenses. This is preferable for attribution analysis and other value-added
reporting as it evaluates the contribution of the Investment Manager.
(d) MSCI Emerging Markets (Total Return) Index, inclusive of dividends reinvested. Indices are comparable to gross
returns as they include no expenses.
(e) Excess return is the difference between the gross return of the portfolio and the return of the benchmark.
(f) The "Residual" represents the difference between the actual excess return and the excess return explained by the
attribution model. This amount results from several factors, most significantly the difference between the actual trade
price of securities included in actual performance and the end of day price used to calculate attribution.
Contributors and Detractors by Security
Top Contributors to relative performance by Security (%)(a)
Top Contributors Share Price Relative Contribution
Total Return to Portfolio
Brilliance China Automotive 87.6 2.3
Buenaventura, ADR 88.0 1.5
Itaú Unibanco, ADR 84.6 1.0
NetEase, ADR 130.2 0.8
Samsung Electronics 87.5 0.7
M. Dias Branco 153.3 0.7
Banco Bradesco, ADR 80.2 0.6
Kiatnakin Bank(b) 111.9 0.5
Largan Precision 137.1 0.5
Kumba Iron Ore(b)(c) 59.9 0.5
(a) For the period 31 March 2016 to 31 March 2017.
(b) Security not included in the MSCI Emerging Markets Index.
(c) Security no longer held by TEMIT as at 31st March 2017.
Brilliance China Automotive manufactures and sells automobiles for the Chinese domestic market, predominantly through its
joint venture with German luxury car manufacturer BMW. We expect luxury car demand to remain resilient and be supported by
the continued rise of China's upper middle class. Furthermore, we view the automobile market favourably, as penetration
rates remain quite low in comparison with developed markets. We are of the opinion that the stock has an exciting outlook
based upon new vehicle launches, increased financing revenues, a supportive macroeconomic environment and attractive
valuations.
Buenaventura is the largest precious metals company in Peru and a major holder of mining rights in the country. It is
engaged in the mining, processing, development and exploration of primarily gold and silver, but also copper, zinc and
lead. A rebound in precious and industrial metal prices, and successful cost-cutting efforts resulted in a turnaround in
operating performance in 2016 from 2015. The political environment in Peru has also stabilised and improved, somewhat, as a
result of the election of a more pro-business government.
Itaú Unibanco is one of Brazil's largest financial conglomerates. It operates across a wide range of segments, including
asset management, insurance, wholesale banking, full retail operations, credit card and general corporate and personal
lending. It announced solid fourth quarter results with an improvement in asset quality and lower provisions, and an
increase in the payout ratio, driving the stock price in the latter part of the reporting period. A higher than expected
income forecast for 2017 and expectations of continued improvement in credit quality, also benefited sentiment.
Top Detractors to relative performance by Security (%)(a)
Top Detractors Share Price Relative Contribution
Total Return to Portfolio
Hyundai Development 5.6 (0.5)
Vale, ADR(b) 188.8 (0.4)
Daelim Industrial 5.0 (0.3)
Sberbank of Russia, ADR 101.4 (0.3)
China Construction Bank(b) 54.3 (0.3)
Youngone(c) (17.9) (0.3)
Uni-President China(c) 2.0 (0.2)
Unilever(c) 29.1 (0.2)
Victory City International(c) (d) (41.9) (0.2)
KCB Group(c) (3.3) (0.2)
(a) For the period 31 March 2016 to 31 March 2017.
(b) Security not held by TEMIT.
(c) Security not included in the MSCI Emerging Markets Index.
(d) Security no longer held by TEMIT as at 31st March 2017.
Hyundai Development is one of the leading residential property developers in South Korea. With a strong brand name - "I
Park", the company is one of the largest participants in the residential construction business. The company reported below
consensus fourth quarter operating profits mainly due to higher expenses. Earnings from the housing division, however,
remained strong. Sentiment towards the stock was also influenced by new housing market regulations and measures to curtail
household loan growth.
Vale is a major mining company based in Brazil with ownership of very large reserves of iron ore and nickel as well as
transport and logistics assets. The stock performed well during the reporting period on a rebound in iron ore and ferrous
metal prices, supported by stimulus measures in China. TEMIT no longer holds this stock on concerns of uncertain Chinese
demand, excessive supply, and a highly leveraged balance sheet given the low iron ore prices at the beginning of 2016. In
addition, there is a pending class action lawsuit against the company over the collapse of a tailings dam in Brazil.
Daelim Industrial is a leading South Korean construction and petrochemical company. The company reported worse than
expected fourth quarter operating profits mainly due to one-offs, including the booking of plant and civil engineering
costs in domestic and international projects. Daelim's architecture/housing and petrochemical divisions, however, continued
to contribute to earnings. A gradual recovery in Daelim's Middle East operations in recent years, higher oil prices and
long-term housing demand in South Korea support our positive view on the firm and led us to increase our holdings in the
stock during the reporting period.
Top Contributors and Detractors to relative performance by Sector (%)(a)
MSCI MSCI
Emerging Emerging
Markets Index Relative Markets Index Relative
Sector Total Contribution Sector Total Contribution
Top Contributors Return to Portfolio Top Detractors Return to Portfolio
Consumer Discretionary 27.2 3.1 Industrials 24.5 (0.4)
Information Technology 50.4 3.1
Financials 39.2 2.4
Materials 47.6 2.0
Consumer Staples 17.2 1.8
Telecommunication Services 18.6 0.9
Energy 43.2 0.7
Health Care 12.6 0.6
Utilities 20.1 0.5
Real Estate 22.2 0.5
(a) For the period 31 March 2016 to 31 March 2017.
With the exception of industrials, which mildly detracted, all the sectors had a positive impact on relative performance.
Selection in consumer discretionary, information technology, financials, materials and consumer staples, where an
overweight position also helped, contributed the most. A rebound in commodity prices, improving investor confidence in
emerging markets and demand for consumer goods and services supported the performance of these sectors. Positions in the
industrials sector were reduced during the year.
Top Contributors and Detractors to relative performance by Country (%)(a)
MSCI MSCI
Emerging Emerging
Markets Index Relative Markets Index Relative
Country Total Contribution Country Total Contribution
Top Contributors Return to Portfolio Top Detractors Return to Portfolio
China/Hong Kong 37.9 4.0 Kenya(c) - (0.3 )
Brazil 64.6 2.0 United Kingdom(c) - (0.2 )
Peru 51.6 1.5 Cambodia(c) - (0.1 )
South Africa 25.2 1.4 Russia 47.7 (0.0 )
Mexico 12.5 1.1 Nigeria(c) - 0.0
Malaysia(b) 5.6 0.9 Chile(b) 37.7 0.0
Taiwan 42.6 0.8 Hungary 32.6 0.0
Thailand 35.6 0.8 Jordan(c) - 0.0
Pakistan(c) - 0.6 United States(c) - 0.0
Turkey (3.8) 0.4 South Korea 39.5 0.0
(a) For the period 31 March 2016 to 31 March 2017.
(b) No companies held by TEMIT in this country.
(c) No companies included in the MSCI Emerging Markets Index in this country.
Geographically, stock selection in China was a significant contributor to relative performance. Selection and allocation in
Brazil (overweight relative to the benchmark index), Peru (overweight), South Africa (underweight) and Mexico (underweight)
further supported relative returns. In contrast, overweight positions in Kenya and Cambodia, which are not part of the
benchmark index, had a negative impact. Reductions were made in Brazil and Peru during the year, while holdings in Russia,
Mexico, South Africa, Kenya and Cambodia were increased.
As corporations can interpret market rules and regulations differently, we believe our research-based, active approach to
investing is critical in helping us to find companies that operate high standards of corporate governance, respect their
shareholder base and understand the local intricacies that may determine consumer trends and habits.
Currently, we have identified opportunities among some larger-sized companies, but tend generally to favour mid-sized
companies which we think have the potential to outperform the market as a whole. We look for companies which we believe
have the ability to adapt more efficiently to a fast changing environment, run by flexible and well incentivised management
teams.
We remain focused on seeking the optimum balance between risk and reward by ensuring the portfolio is not too heavily
exposed to any one company, sector or market.
Our resulting portfolio is listed by size of holding.
Portfolio changes by Sector
Total Return in sterling
31 March 2016 Market 31 March 2017 MSCI Emerging
Market Value Purchases Sales Movement Market Value TEMIT Markets Index
Sector £m £m £m £m £m % %
Information Technology 409 95 106 228 626 60.9 50.4
Consumer Discretionary 293 106 54 131 476 48.1 27.2
Financials 294 140 135 140 439 55.4 39.2
Energy 133 72 73 54 186 50.6 43.2
Consumer Staples 166 41 86 55 176 36.8 17.2
Materials 62 69 65 63 129 99.1 47.6
Industrials 72 9 17 4 68 7.1 24.5
Health Care 27 18 13 2 34 32.7 12.6
Real Estate 12 1 3 3 13 40.6 22.2
Telecommunication Services 14 - 5 2 11 18.7 18.6
Utilities - 8 - - 8 (6.2) 20.1
Other Net Assets 80 - - (98) (18) - -
Total 1,562 559 557 584 2,148
Sector Asset Allocation
As at 31 March 2017
Sector weightings vs benchmark (%)
Portfolio changes by Country
Total Return in sterling
31 March 2016 Market 31 March 2017 MSCI Emerging
Market Value Purchases Sales Movement Market Value TEMIT Markets Index
Country £m £m £m £m £m % %
China/Hong Kong 309 111 122 173 471 63.3 37.9
South Korea 199 50 57 74 266 39.9 39.5
Taiwan 127 22 _ 71 220 56.0 42.6
Brazil 170 43 135 95 173 72.4 64.6
Russia 53 93 12 34 168 45.2 47.7
India 140 37 90 45 132 40.8 36.1
Thailand 80 14 7 36 123 51.4 35.6
South Africa 75 36 26 31 116 50.2 25.2
Indonesia 78 8 2 29 113 39.0 30.0
Other 251 145 106 94 384 _ _
Other Net Assets 80 - - (98) (18) _ _
Total 1,562 559 557 584 2,148
Geographic Asset Allocation
As at 31 March 2017
Country weightings vs benchmark (%)(a)
(a) Other countries held by the benchmark are Chile, Colombia, Egypt, Greece, Malaysia, Poland, Qatar, Romania, Turkey
and United Arab Emirates.
(b) Countries not included in the MSCI Emerging Markets Index.
Portfolio Report (continued)
Portfolio Investments by Fair Value
As at 31 March 2017
Fair Value % of net
Holding Country Sector Trading(a) £'000 assets
Brilliance China Automotive China/Hong Kong Consumer Discretionary PS 153,230 7.1
Samsung Electronics South Korea Information Technology IH 147,199 6.9
Taiwan SemiconductorManufacturing Taiwan Information Technology IH 95,415 4.4
Naspers South Africa Consumer Discretionary IH 92,260 4.3
Unilever(b) United Kingdom Consumer Staples PS 79,067 3.7
Tencent China/Hong Kong Information Technology NT 73,471 3.4
Astra International Indonesia Consumer Discretionary NT 64,679 3.0
Buenaventura, ADR(c) Peru Materials PS 64,613 3.0
Hon Hai Precision Industry Taiwan Information Technology IH 59,228 2.8
Alibaba, ADR(c) China/Hong Kong Information Technology NH 53,363 2.5
TOP 10 LARGEST INVESTMENTS 882,525 41.1
MCB Bank Pakistan Financials PS 46,545 2.2
Itaú Unibanco, ADR(c) Brazil Financials PS 45,852 2.1
ICICI Bank India Financials IH 45,041 2.1
LUKOIL, ADR(c)(d) Russia Energy NH 41,963 2.0
Bank Danamon Indonesia Indonesia Financials PS 40,399 1.9
Gazprom, ADR(c) Russia Energy NT 32,147 1.5
Grupo Financiero SantanderMexico, B, ADR(c) Mexico Financials NH 31,419 1.5
Hyundai Development South Korea Industrials PS 29,705 1.4
China Petroleum and Chemical China/Hong Kong Energy NT 28,983 1.4
Sberbank of Russia, ADR(c) Russia Financials NH 28,969 1.3
TOP 20 LARGEST INVESTMENTS 1,253,548 58.5
(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale, (IS) Increased
Holding and Partial Sale and (NT) No Trading.
(b) These companies, listed on stock exchanges in developed markets, have significant exposure to operations from
emerging markets.
(c) US listed American Depositary Receipt.
(d) Security listed on the London and Moscow Stock Exchanges.
Fair Value % of net
Holding Country Sector Trading(a) £'000 assets
Largan Precision Taiwan Information Technology NT 27,450 1.3
Kiatnakin Bank Thailand Financials PS 27,021 1.3
Ping An Insurance Group China/Hong Kong Financials NH 26,612 1.3
Kasikornbank Thailand Financials PS 26,508 1.2
SABIC, Participatory Note Saudi Arabia Materials NH 26,491 1.2
Daelim Industrial South Korea Industrials IH 26,229 1.2
Thai Beverages Thailand Consumer Staples IH 25,291 1.2
Gedeon Richter Hungary Health Care IH 24,612 1.2
Mail.Ru, GDR(e) Russia Information Technology IH 24,321 1.1
NetEase, ADR(c) China/Hong Kong Information Technology IS 24,274 1.1
TOP 30 LARGEST INVESTMENTS 1,512,357 70.6
Banco Bradesco, ADR(c)(f) Brazil Financials PS 23,980 1.1
CIA Hering Brazil Consumer Discretionary PS 23,454 1.1
Lojas Americanas Brazil Consumer Discretionary IH 20,821 1.0
Massmart South Africa Consumer Staples NT 20,242 0.9
Catcher Technology Taiwan Information Technology IH 20,195 0.9
Yandex Russia Information Technology NT 19,970 0.9
CNOOC(c)(g) China/Hong Kong Energy NH 19,404 0.9
IMAX(b) United States Consumer Discretionary NH 19,343 0.9
Infosys Technologies India Information Technology IH 18,478 0.9
Siam Commercial Bank Thailand Financials PS 17,975 0.8
TOP 40 LARGEST INVESTMENTS 1,716,219 80.0
(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale, (IS) Increased
Holding and Partial Sale and (NT) No Trading.
(b) These companies, listed on stock exchanges in developed markets, have significant exposure to operations from
emerging markets.
(c) US listed American Depositary Receipt.
(e) UK listed Global Depositary Receipt.
(f) Preferred Shares.
(g) Security listed on the Hong Kong and New York Stock Exchanges.
Portfolio Report (continued)
Fair Value % of net
Holding Country Sector Trading(a) £'000 assets
Pegatron Taiwan Information Technology NT 17,308 0.8
TOTVS Brazil Information Technology NT 16,723 0.8
Hanon Systems South Korea Consumer Discretionary IH 16,355 0.8
Uni-President China China/Hong Kong Consumer Staples NT 15,722 0.8
Reliance Industries India Energy PS 15,642 0.8
Norilsk Nickel, ADR(c) Russia Materials NH 13,993 0.7
KCB Group Kenya Financials IH 13,482 0.6
Land and Houses Thailand Real Estate IH 13,348 0.6
Tata Chemicals India Materials NT 13,235 0.6
NagaCorp Cambodia Consumer Discretionary IH 13,186 0.6
TOP 50 LARGEST INVESTMENTS 1,865,213 87.1
Baidu, ADR(c) China/Hong Kong Information Technology PS 12,821 0.6
BM&F Bovespa Brazil Financials IS 12,793 0.6
MGM China China/Hong Kong Consumer Discretionary NT 12,221 0.6
FPC PAR Corretora De Seguros Brazil Financials NH 12,050 0.6
Nemak Mexico Consumer Discretionary IH 11,782 0.5
Coal India India Energy NH 11,496 0.5
M. Dias Branco Brazil Consumer Staples PS 11,361 0.5
Sunny Optical Technology China/Hong Kong Information Technology NH 11,342 0.5
Tata Motors India Consumer Discretionary IH 11,248 0.5
SK Innovation South Korea Energy PS 10,843 0.5
TOP 60 LARGEST INVESTMENTS 1,983,170 92.5
PTT Exploration and Production Thailand Energy NT 10,064 0.5
Equity Group Kenya Financials NH 10,040 0.5
Inner Mongolia Yitai Coal China/Hong Kong Energy NH 8,876 0.4
Dairy Farm China/Hong Kong Consumer Staples PS 8,716 0.4
Moneta Money Bank Czech Republic Financials NH 8,572 0.4
Perusahaan Gas Negara Persero Indonesia Utilities NH 7,711 0.4
América Móvil, ADR(c) Mexico Telecommunication NT 7,243 0.3
Bajaj Holdings & Investments India Financials IH 7,206 0.3
COSCO Pacific China/Hong Kong Industrials NT 7,190 0.3
Glenmark Pharmaceuticals India Health Care IH 7,154 0.3
TOP 70 LARGEST INVESTMENTS 2,065,942 96.3
(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale, (IS) Increased
Holding and Partial Sale and (NT) No Trading.
(c) US listed American Depositary Receipt.
Fair Value % of net
Holding Country Sector Trading(a) £'000 assets
Hite Jinro South Korea Consumer Staples NH 7,029 0.3
Youngone South Korea Consumer Discretionary NT 6,831 0.3
TMK, GDR(e) Russia Energy NT 6,816 0.3
Bloomage Biotechnology China/Hong Kong Materials NH 6,773 0.3
KT Skylife South Korea Consumer Discretionary NT 6,617 0.3
BDO Unibank Philippines Financials NH 6,474 0.3
Hyundai Wia South Korea Consumer Discretionary NH 6,362 0.3
MAHLE Metal Leve Brazil Consumer Discretionary IH 5,825 0.3
iMarketKorea South Korea Industrials NT 5,161 0.2
Security Bank Philippines Financials NH 4,733 0.2
TOP 80 LARGEST INVESTMENTS 2,128,563 99.1
Guangzhou Automobile Group China/Hong Kong Consumer Discretionary PS 4,718 0.2
MercadoLibre Argentina Information Technology PS 4,236 0.2
Interpark South Korea Consumer Discretionary IH 3,745 0.2
Industrias Peñoles Mexico Materials NH 3,593 0.2
MTN Group South Africa Telecommunication IS 3,568 0.2
United Bank Pakistan Financials IH 3,374 0.2
Weifu High-Technology, B China/Hong Kong Consumer Discretionary NH 3,210 0.1
Univanich Palm Oil Thailand Consumer Staples PS 3,201 0.1
East African Breweries Kenya Consumer Staples NH 2,800 0.1
Biocon India Health Care PS 2,543 0.1
TOP 90 LARGEST INVESTMENTS 2,163,551 100.7
Savola Group, Participatory Note Saudi Arabia Consumer Staples NH 1,737 0.1
Nigerian Breweries Nigeria Consumer Staples IH 529 0.0
Hankook Tire South Korea Consumer Discretionary PS 133 0.0
TOTAL INVESTMENTS 2,165,950 100.8
OTHER NET ASSETS (17,853) (0.8)
TOTAL NET ASSETS 2,148,097 100.0
(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale, (IS) Increased
Holding and Partial Sale and (NT) No Trading.
(e) UK listed Global Depositary Receipt.
Portfolio Report (continued)
Portfolio Summary
As at 31 March 2017
All figures are in %
Consumer Discretionary Consumer Staples Energy Financials Health Industrials Information Technology Materials Real Estate(a) Telecommunication Utilities Total Other 2017 2016
Care Services Equities Net Total Total
Assets
Argentina - - - - - - 0.2 - - - - 0.2 - 0.2 0.3
Brazil 2.4 0.5 - 4.4 - - 0.8 - - - - 8.1 - 8.1 -
Czech Republic - - - 0.4 - - - - - - - 0.4 - 0.4 10.9
Cambodia 0.6 - - - - - - - - - - 0.6 - 0.6 0.7
China/Hong Kong 8.0 1.2 2.7 1.3 - 0.3 8.1 0.3 - - - 21.9 - 21.9 19.8
Hungary - - - - 1.2 - - - - - - 1.2 - 1.2 0.8
India 0.5 - 1.3 2.4 0.4 - 0.9 0.6 - - - 6.1 - 6.1 9.0
Indonesia 3.0 - - 1.9 - - - - - - 0.4 5.3 - 5.3 5.0
Kenya - 0.1 - 1.1 - - - - - - - 1.2 - 1.2 0.4
Mexico 0.5 - - 1.5 - - - 0.2 - 0.3 - 2.5 - 2.5 0.7
Nigeria - 0.0 - - - - - - - - - 0.0 - 0.0 0.0
Pakistan - - - 2.4 - - - - - - - 2.4 - 2.4 4.3
Peru - - - - - - - 3.0 - - - 3.0 - 3.0 2.2
Philippines - - - 0.5 - - - - - - - 0.5 - 0.5 -
Russia - - 3.8 1.3 - - 2.0 0.7 - - - 7.8 - 7.8 3.4
Saudi Arabia - 0.1 - - - - - 1.2 - - - 1.3 - 1.3 -
South Africa 4.3 0.9 - - - - - - - 0.2 - 5.4 - 5.4 4.8
South Korea 1.9 0.3 0.5 - - 2.8 6.9 - - - - 12.4 - 12.4 12.7
Taiwan - - - - - - 10.2 - - - - 10.2 - 10.2 8.2
Thailand - 1.3 0.5 3.3 - - - - 0.6 - - 5.7 - 5.7 5.1
Turkey - - - - - - - - - - - - - - 1.6
United Kingdom - 3.7 - - - - - - - - - 3.7 - 3.7 5.0
United States 0.9 - - - - - - - - - - 0.9 - 0.9 -
Other Net Assets - - - - - - - - - - - - (0.8) (0.8) 5.1
2017 Total 22.1 8.1 8.8 20.5 1.6 3.1 29.1 6.0 0.6 0.5 0.4 100.8 (0.8) 100.0 -
2016 Total 18.8 10.6 8.4 18.8 1.8 4.6 26.2 4.0 0.8 0.9 - 94.9 5.1 - 100.0
(a) A new sector classification was introduced to the industry on 1 September 2016. Land and Houses and Peninsula Land
were previously included within Financials but have been reallocated to Real Estate due to this change.
Less than £1.5bn to Greater than Other Net
Market Capitalisation Breakdown(b) (%) £1.5bn £5bn £5bn Assets
31 March 2017 9.3 18.9 72.6 (0.8)
31 March 2016 12.5 27.6 54.8 5.1
(b) Market Capitalisation - The total market value of a company's shares. For a vehicle like TEMIT, which invests in a
number of companies, this is calculated by the share price on a certain date multiplied by the number of shares in issue.
Source: FactSet
Split Between Markets(c) (%) 31 March 2017 31 March 2016
Emerging Markets 92.4 84.9
Frontier Markets 3.8 5.0
Developed Markets(d) 4.6 5.0
Other Net Assets (0.8) 5.1
(c) Geographic split between "Emerging Markets", "Frontier Markets" and "Developed Markets" are as per MSCI index
classifications.
(d) Developed markets exposure represented by companies listed in the United Kingdom and United States.
Source: FactSet Research System, Inc.
Market Outlook
We believe the recent improvement in emerging market fundamentals should be helpful for continued strength in emerging
market equities, and we also believe valuations in these markets appear attractive relative to developed markets.
Nonetheless, we are mindful of potential volatility and remain alert to risks, some of which include the potential of
further increases in US interest rates, uncertainty about the new US administration's policies, and potential currency
moves.
Strengthening macroeconomic data including acceleration in domestic consumption, a revival of private investment, a
recovery in export demand and easing concerns about trade friction with the US bode well for Chinese equities. After the
tightening of capital outflows by the People's Bank, the Chinese renminbi has also seen some stability against the US
dollar. The earnings outlook for corporates also appears positive as many companies could benefit from reflation in the
industrials sector and recovery of capital expenditure. However, we remain mindful of the fact that China is still in the
process of making adjustments in its policy framework. The growth of shadow banking, the presence of high leverage in the
system and regulatory objectives on ensuring stability in the system, mean that we may see strong policy response from
China which could impact growth and have implications on various sectors including commodities and real estate.
The Company maintains a positive view on technology hardware and semiconductor stocks in South Korea and Taiwan. Although
we are cautious of the share price advances in some shares, we continue to see pockets of value in the sector. The
information technology sector has been growing in importance in emerging markets, and is becoming more integral and
competitive. In addition to internet companies, which stand to benefit from a movement toward more online transactions, we
see potential for attractive long-term investment opportunities in the following areas: shopping, gaming and other
services, hardware companies providing application processors and memory chips for smartphones, graphic processing units
for data centres and artificial intelligence applications, as well as connectivity and processor integrated circuits for
autonomous cars and devices related to the "Internet of Things."
We also think opportunities still exist across the energy sector. Overall, we believe oil companies with upstream
operations are best positioned to benefit from higher oil prices, and we remain positive on a number of companies in China,
Russia, Thailand, Pakistan and India. Over the longer-term, higher oil prices could result in a potential increase in
supply from a number of areas such as more shale producers, increased drilling activity around the world, and/or a
production increase by low-cost producers to support fiscal revenues.
In Brazil, strong momentum on reform in both macroeconomic issues (government debt, pension deficits, labour reform) and
across economic sectors focused on improving the business environment provides reasons for optimism. Additionally, the
economy is recovering from two years of GDP contraction. Therefore the base of growth is very low, allowing strong
operational advantage with even a small upturn. Taking that into consideration, we believe Brazil is likely to continue to
cut interest rates this year, allowing strong financial leverage to consumers and companies.
Emerging markets are generally in a recovery mode. Low borrowing, improved current accounts, robust exports, progress in
corporate earnings, and stabilising industrial production and exchange rates are reasons to be confident. Overall, we
believe that emerging markets are on course to continue their recovery based on robust and improved economic fundamentals.
Valuations have not been this low, relative to developed markets, in many years and we are seeing attractive opportunities
for investors.
Carlos Hardenberg
7 June 2017
Financial Statements
Income Statement
For the Year Ended 31 March 2017
Year ended
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