Laurence Bensafi of RBC Global Asset Management.The Globe and Mail
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Emerging markets have disappointed investors in recent years, but Laurence Bensafi has beaten the benchmarks by being selective with her stock picks.
Ms. Bensafi, deputy head of emerging-markets equities at RBC Global Asset Management, invests in cheap, dividend-paying companies with good track records.
“It’s a value strategy, but with a quality focus. We look for companies generating strong, free cash flow and paying shareholders with cash,” says Ms. Bensafi, a portfolio manager in London who oversees about US$1.3-billion in assets. “Our long-term track record has been quite good because of our focus on quality.”
She manages RBC Emerging Markets Dividend Fund, which returned 0.7 per cent for the 12 months ended March 31. That compares to a drop of 3.2 per cent for the benchmark MSCI Emerging Markets Index. Her average annualized return over the past three years as of March 31 is 12.2 per cent, double the 6-per-cent return for the MSCI benchmark. Ms. Bensafi’s performance is based on total returns, net of fees.
Her fund’s top five holdings include Taiwan Semiconductor Manufacturing Co. Ltd., Chinese internet and e-commerce giant Alibaba Group Holding Ltd., South Korean multinational electronics company Samsung Electronics Co. Ltd., South African technology company Naspers Ltd., and Chinese financial and health care services giant Ping An Insurance Group Co. of China Ltd.
The fund’s top five holdings by geography are China at 27.1 per cent, Taiwan at 15.5 per cent, South Korea at 13.9 per cent, India at 9.7 per cent and South Africa at 7.1 per cent.
The Globe and Mail spoke with Ms. Bensafi recently about what she’s been buying and selling and her advice for investors new to the emerging-markets space.
What’s your take on the current emerging markets’ environment?
Emerging markets have been a major disappointment for the past 10 years or so compared with U.S. equities, which have done well up until last year, driven by low-interest rates, low inflation, and a strong dollar. All of those factors are negative for emerging-markets equities. Investor sentiment shifted last year when China ended its zero-COVID-19 policies.
There was a belief that emerging markets would finally do better than developed markets, largely because of the new regime in which interest rates will be higher for longer. January was a good month for emerging markets, but then February disappointed again, and emerging markets have been underperforming since. Part of that is because of global growth concerns. There’s a lot of uncertainty. We still feel there’s a mismatch between the fundamentals for emerging markets, which are improving, and their valuations.
What are some of the most promising emerging markets in your view?
A favourite among many investors is India, which is soon expected to surpass China as having the world’s largest population. India also has a young population, while China’s is aging very quickly. India has a very low level of development compared with China, so there’s a lot of growth potential. India also has some very strong companies. Because of all that, India is among the most expensive emerging market countries today.
Other countries we like are Chile and Mexico, for different reasons. Mexico is the main beneficiary of a retreat in globalization, as more companies move their production back to North America. Chile is also expected to be a big beneficiary in the global shift toward decarbonization. It has some of the world’s largest reserves of copper and lithium, used in products such as electric vehicles.
What have you been buying or adding?
We haven’t done a lot of buying this year. Last summer, up to the end of October, we repositioned the portfolio for the re-opening in China. One name we bought in October was Trip.com Group Ltd., which trades in Hong Kong. It’s one of the biggest online travel agencies in China. It has underperformed since the start of the pandemic for obvious reasons. So, we felt it was undervalued.
Another company we bought recently was Sao Martinho SA, one of Brazil’s leading sugar and ethanol producers. We had the opportunity to buy Sao Martino in November at a cheap valuation and have been adding to it. We feel very strongly about that name for the long term because demand for its products should continue to be strong. Ethanol is also expected to be more attractive after the recent election in Brazil of leftist president Luiz Inacio Lula da Silva, who we expect will put in place regulations to incentivize people to use more green fuel for their cars.
What have you been selling or trimming?
When we bought Sao Martinho, we sold state-owned Brazilian energy giant Petrobras, formally known as Petroleo Brasileiro SA. We started selling it before the country’s election and exited the position when the new government was elected. Petrobras has always been a very volatile stock, but it did well during the previous, more pro-business government. We believe capital expenditures will increase, and dividends will be cut as the government forces the company to shift to more renewable energy projects and renewed investments in refining. The government also changed the company’s management team to include people we feel are not as qualified as the old management.
What’s your advice for new investors?
For new investors, especially in emerging markets, I advise focusing on diversification. Investors can get excited about a story somewhere, but there are a lot of different risks including currency, regulation and geopolitics. For instance, India is a great story, but I wouldn’t put everything on India because anything can happen. Also, for long-term performance, look at the fundamentals including the quality of a company, its management, balance sheet, cash flow generation and dividends.
This interview has been edited and condensed.
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