Templeton Emerging Markets Investment Trust — Managers keeping the faith with quality portfolio

Templeton Emerging Markets Investment Trust (LSE: TEM)

Last close As at 19/07/2024

GBP1.66

0.00 (0.00%)

Market capitalisation

GBP1,813m

More on this equity

Research: Investment Companies

Templeton Emerging Markets Investment Trust — Managers keeping the faith with quality portfolio

Templeton Emerging Markets Investment Trust (TEMIT) benefits from the extensive experience of co-managers Chetan Sehgal (lead manager) and Andrew Ness. The trust’s performance has turned a corner as its results tend to be better during periods when share prices are driven by company fundamentals, which are the driver of long-term equity returns, rather than macroeconomic factors. Emerging markets offer a broad range of investment opportunities and are home to a growing number of world-class, leading businesses. While all portfolio stocks are selected on a bottom-up basis, TEMIT’s high-conviction portfolio is widely diversified by geography, sector and market cap. Its balanced structure means the fund has potential to outperform in both up and down markets.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

Templeton Emerging Markets IT

Managers keeping the faith with quality portfolio

Investment trusts
Emerging markets equities

4 July 2023

Price

148.0p

Market cap

£1,704m

Total assets

£1,953m

NAV*

169.7p

Discount to NAV

12.8%

*Including income. At 30 June 2023

Yield

3.4%

Ordinary shares in issue

1,151.1m

Code/ISIN

TEM/GB00BKPG0S09

Primary exchange

LSE

AIC sector

Global Emerging Markets

Financial year end

31 March

52-week high/low

164.6p

130.6p

NAV* high/low

185.1p

150.3p

*Including income

Net cash (at 31 May 2023)

3%

Fund objective

Launched in June 1989, Templeton Emerging Markets Investment Trust was one of the first emerging markets funds in the UK. The trust seeks long-term capital appreciation through investment in companies operating in emerging markets or listed on the stock markets of such countries. This may include companies that have a significant amount of their revenues in emerging markets but are listed on stock exchanges in developed countries. Performance is benchmarked against the MSCI Emerging Markets Index.

Bull points

Large, diversified fund run by two experienced managers, who are part of a well-resourced team of more than 70 investment professionals based in 13 countries around the world.

Relative performance is improving.

The FY23 fully covered dividend is significantly higher year-on-year.

Bear points

Emerging markets can be more volatile than developed markets.

Modest absolute returns from emerging market equities over the last decade.

Stubbornly wide discount.

Analyst

Mel Jenner

+44 (0)20 3077 5700

Templeton Emerging Markets Investment Trust is a research client of Edison Investment Research Limited

Templeton Emerging Markets Investment Trust (TEMIT) benefits from the extensive experience of co-managers Chetan Sehgal (lead manager) and Andrew Ness. The trust’s performance has turned a corner as its results tend to be better during periods when share prices are driven by company fundamentals, which are the driver of long-term equity returns, rather than macroeconomic factors. Emerging markets offer a broad range of investment opportunities and are home to a growing number of world-class, leading businesses. While all portfolio stocks are selected on a bottom-up basis, TEMIT’s high-conviction portfolio is widely diversified by geography, sector and market cap. Its balanced structure means the fund has potential to outperform in both up and down markets.

Higher growth potential in emerging markets

Source: International Monetary Fund World Economic Outlook April 2023 data, Edison Investment Research. Note: p is projected.

Why consider TEMIT?

Global investors, who are prepared to look through periods of above-average stock market volatility, may benefit from an exposure to emerging markets given their relatively higher growth prospects (c 65% of world growth) and attractive relative valuations compared with developed markets.

TEMIT is a well-established fund, and its managers can draw on the very wide resources of the Franklin Templeton Emerging Markets Equity (FTEME) team, who’s on-the-ground presence can identify interesting opportunities that may be overlooked by the trust’s peers. Sehgal and Ness invest in companies with sustainable earnings power that are trading at a discount to their estimated intrinsic values. Despite a difficult period of performance between mid-2021 and mid-2022, due to macroeconomic factors, the strategy has proved successful, as TEMIT’s NAV is ahead of its benchmark over the last one and five years and is also modestly ahead over the last decade.

The trust is the largest fund in the AIC Global Emerging Markets sector by a wide margin and its shares are liquid. TEMIT’s 12.8% discount is wider than its historical average of c 11.5% over the last decade, providing scope for a higher valuation if investor risk aversion moderates or if the trust’s relative performance continues to improve versus its benchmark and its peers.

TEMIT: A potential go-to name for EM exposure

The managers comment that the improvement in TEMIT’s relative performance is most welcome. They say that 12 months ago, they were experiencing the toughest performance periods of their careers; however, they had huge confidence in the trust’s portfolio, which is once again bearing fruit. The managers describe TEMIT as a quality growth fund, but growth is not ‘at any price’ and the fund is made up of world-class, well-managed businesses. The portfolio yield is around 4% and 20% of the fund has a dividend yield greater than 5%. Companies are also returning cash to shareholders via share repurchases, which the managers find reassuring given the uncertain economic environment.

TEMIT’s valuation multiples (P/E, price to cash flow and price to book) are less than the benchmark’s so ‘quality value’ may be another way to describe the trust, which has the potential to outperform in a range of market environments. TEMIT can be considered a core emerging market fund or as part of a multi-manager strategy, as a balance to high-growth emerging market strategies. Some of the trust’s competitors had a large weighting in highly valued growth stocks so, as these have de-rated in a higher interest rate environment, it has been beneficial to TEMIT’s relative performance.

The managers are bullish on the outlook for emerging markets, considering them to be under-owned and undervalued. The region’s c 12x forward P/E valuation multiple is in line with the 15-year average but, relative to developed markets, especially the US, the managers consider there is a compelling investment case on both a P/E and price-to-book basis. They believe that positive emerging market attributes are underappreciated, such as well-capitalised banking systems and, compared with the western regions, underlevered sovereign, corporate and household balance sheets. During the global pandemic, there was less fiscal support in emerging markets compared with developed regions, meaning that as economies have reopened, the bounceback in activity has been greater in developed versus emerging markets.

Exhibit 1: Scope for better relative performance from emerging market equities, which have significantly lagged the world market over the last decade

Source: Refinitiv, Edison Investment Research

Recent portfolio activity can be categorised in four ‘buckets’

Long-duration stocks: these businesses have de-rated and their valuations have become more appealing. The managers are dipping their toes into these names, especially in India. These include three IPOs that came to the market within the last two years and are underwater: Zomato, a restaurant platform and food delivery company (TEMIT participated in the IPO), insurance broker Policy Bazaar and Paytm, which is a digital payments fintech company. In general, the competitive operating environment has improved, favouring well-funded firms, while long-duration, cash-consuming businesses are finding it difficult to access capital. In such a scenario, high-quality companies have the potential to generate higher margins.

South Korea: the managers have been investing in the electric vehicle battery supply chain, for example Samsung SDI. They believe that electric vehicle penetration has a long runway. Demand for these vehicles has been soft due to the economic environment and high commodity prices, but these are now rolling over, which should increase affordability and lead to higher demand. South Korea is well positioned to benefit from tensions between the US and China, for example in renewable energy, especially solar.

IPOs in the Middle East: the managers are approaching these listings opportunistically, in a region that is benefiting from a capital markets boom. Historically, these IPOs favoured the sellers but now there are greater opportunities for investors to make money.

China: TEMIT’s China underweight position has decreased over the last two years. Exposure was increased during a period of market weakness following the announcement of Xi Jinping’s third term in office at the 20th National Congress of the Chinese Communist Party in October 2022. Businesses are adapting to the new regulatory environment in China, which should support reinvestment, corporate capital allocation has improved, some companies are repurchasing shares and, according to the managers, there are some compelling valuations in the country. TEMIT used to have a c 10.0pp underweight to China, which had narrowed to 3.5pp at end May 2023 (Exhibit 5). Having recently visited China, Ness reports that investor sentiment is universally negative, which may offer an interesting opportunity for those looking to add exposure to the country. As the Chinese post-COVID economic recovery has been more muted than generally expected, there could be additional policy stimulus, which may be more targeted than previous initiatives. The managers anticipate that the slow recovery in the service sector will then lead to increased consumption, a reduction in inventories and an investment cycle over the next six to 12 months.

Current portfolio breakdown

TEMIT’s sector exposure

Stocks are selected on a bottom-up basis and so the trust’s sector and geographic weightings are a by-product of this process. As shown in Exhibit 3, over the 12 months to end-May 2023, the largest sector changes were a 4.2pp higher exposure to industrials and a 7.9pp lower allocation to technology stocks, although this remains TEMIT’s largest overweight versus the benchmark (+5.8pp). The largest sector underweight position was consumer staples (-3.2pp).

Exhibit 2: TEMIT’s sector weights versus the benchmark

Source: TEMIT, Edison Investment Research. Note: Excludes other net assets.

Exhibit 3: Portfolio sector changes and active weights versus benchmark (% unless stated)

Portfolio
end-May 2023

Portfolio
end-May 2022

Change
(pp)

Active weight
vs index (pp)

Information technology

27.4

35.3

(7.9)

5.8

Financials

23.5

22.4

1.1

1.5

Consumer discretionary

11.8

11.7

0.1

(0.6)

Communication services

9.1

9.9

(0.8)

(0.6)

Materials

8.0

9.8

(1.8)

(0.4)

Industrials

7.8

3.6

4.2

1.7

Consumer staples

3.3

4.0

(0.7)

(3.2)

Healthcare

3.2

1.7

1.5

(0.7)

Energy

2.7

1.8

0.9

(2.4)

Utilities

0.5

0.4

0.1

(2.2)

Real estate

0.4

0.7

(0.3)

(1.4)

Other net assets

2.4

(1.3)

3.7

2.4

100.0

100.0

Source: TEMIT, Edison Investment Research. Note: Numbers subject to rounding.

TEMIT’s geographic exposure

As shown in Exhibit 5, over the 12 months to end May the weighting to Indian stocks increased by 3.5pp, although it remained underweight versus the benchmark (-1.9pp). Recent additions to the fund include ACC (cement manufacturing) and Hindalco (aluminium production). Notable deviations from the benchmark allocations were overweight positions in South Korea (+8.3pp, which is towards the high end of the three-year historical range), Brazil (+3.1pp) and the US (+2.9pp), due to two holdings that are listed in this developed market but have significant operations in emerging markets. TEMIT has a below-index exposure to China (-3.5pp) and has a meaningful lower allocation to the rest of the world (-11.8pp) compared with the benchmark.

Exhibit 4: TEMIT’s geographic weights versus the benchmark

Source: TEMIT, Edison Investment Research. Note: Excludes net other assets.

Exhibit 5: Portfolio geographic changes and active weights vs benchmark (% unless stated)

Portfolio
end-May 2023

Portfolio
end-May 2022

Change
(pp)

Active weight
vs index (pp)

China

25.7

27.2

(1.5)

(3.5)

South Korea

21.0

23.4

(2.4)

8.3

Taiwan

16.5

16.9

(0.4)

0.3

India

12.4

8.9

3.5

(1.9)

Brazil

8.2

9.7

(1.5)

3.1

US

2.9

3.6

(0.7)

2.9

Thailand

2.3

2.1

0.2

0.3

Rest of the world

8.5

9.5

(1.1)

(11.8)

Other net assets

2.4

(1.3)

3.7

2.4

100.0

100.0

Source: TEMIT, Edison Investment Research. Note: Numbers subject to rounding.

TEMIT’s top 10 positions

At end May 2023, TEMIT’s top 10 holdings, which represent a range of countries and sectors, made up 45.8% of the portfolio, which was a lower concentration compared with 52.6% 12 months earlier; eight positions were common to both periods.

The trust has a multi-cap portfolio broken down as follows: above $50bn (46.1%); $25–50bn (11.9%); $10–25bn (12.9%); $5–10bn (14.5%); and less than $5bn (14.6%).

Exhibit 6: Top 10 holdings (at 31 May 2023)

Company

Country

Sector

Portfolio weight %

31 May 2023

31 May 2022*

Taiwan Semiconductor Manufacturing Co

Taiwan

Semiconductors & semi equip

12.3

12.1

Samsung Electronics

South Korea

Technology hardware & equip

6.1

10.4

ICICI Bank

India

Banks

5.9

6.0

Alibaba Group Holding

China

Retailing

4.5

5.4

MediaTek

Taiwan

Semiconductors & semi equip

3.3

3.9

Naver Corporation

South Korea

Media & entertainment

3.1

3.3

Tencent Holdings

China

Media & entertainment

3.0

4.0

LG Corporation

South Korea

Capital goods

2.7

2.6

Prosus

China

Retailing

2.4

N/A

Samsung Life Insurance

South Korea

Insurance

2.3

N/A

Top 10 (% of portfolio)

45.8

52.6

Source: TEMIT, Edison Investment Research. Note: *N/A where not in May 2022 top 10.

Performance: Above market in FY23

In Exhibit 7, we show the constituents of the AIC Global Emerging Markets sector. However, we have excluded JPMorgan Emerging Europe, Middle East & Africa Securities (JEMA), which was formerly JPMorgan Russian Securities, as its inclusion heavily distorts the peer-group averages.

TEMIT is the largest fund by a wide margin. Its NAV total return is modestly above average over the last 12 months, ranking fifth out of nine funds, and below average over the other periods shown, ranking seventh out of nine funds over the last three years, and sixth out of eight funds over the last five and 10 years. The standout performer over the last three, five and 10 years is specialist investor Gulf Investment Fund, which has benefited from rising energy prices and robust growth prospects in the Gulf region. Compared to the two funds that TEMIT’s managers consider to be trust’s closest peers, Fidelity Emerging Markets and JPMorgan Emerging Markets Investment Trust, TEMIT’s total returns rank first over the last 12 months and second over the last three, five and 10 years. The trust’s managers highlight the benefits of Franklin Templeton’s large and globally diversified emerging markets equity team, which can help identify local opportunities that may not be covered by its peers.

Exhibit 7: Selected emerging markets peer group at 3 July 2023*

% unless stated

Market cap (£m)

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (cum fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield

Templeton Emerging Mkts Inv Trust

1,703.6

6.9

3.3

21.0

74.2

(14.2)

1.0

No

100

3.4

Barings Emerging EMEA Opps

57.3

0.2

(13.6)

(12.2)

5.6

(20.1)

1.6

No

100

3.5

BlackRock Frontiers

262.2

14.5

63.4

30.6

109.5

(7.2)

1.4

Yes

115

4.1

Fidelity Emerging Markets

538.3

(1.9)

(14.3)

(3.5)

34.1

(15.5)

0.6

No

100

2.7

Gulf Investment Fund

78.4

14.9

103.1

129.7

223.5

2.0

1.7

No

100

2.9

JPMorgan Emerging Markets Inv Tr

1,203.5

0.4

8.8

29.1

108.9

(11.0)

0.8

No

100

1.3

JPMorgan Global Emerging Mkts Inc

379.6

3.4

25.7

31.3

81.1

(10.5)

0.9

No

107

4.1

Mobius Investment Trust

147.6

10.6

33.2

(2.7)

1.5

No

100

0.9

Utilico Emerging Markets

448.5

12.4

34.3

33.5

91.0

(14.8)

1.4

No

104

3.8

Average (9 funds)

535.5

6.8

27.1

32.5

91.0

(10.4)

1.2

103

3.0

TEM rank in peer group

1

5

7

6

6

6

4

4

5

Source: Morningstar, Edison Investment Research. Note: *Performance at 3 July 2023 based on ex-par NAVs. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

TEMIT’s discount is currently wider than the average of the selected peer group, ranking sixth out of nine funds; only one of which is trading at a premium. The trust has a competitive ongoing charge, and no performance fee is payable. In line with most of the funds in the sector, TEMIT is currently ungeared. Its dividend yield is above the average of the adjusted peer group.

Exhibit 8: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

MSCI Emerging
Markets (%)

MSCI World
(%)

CBOE UK All Companies (%)

30/06/19

14.9

10.2

5.4

10.9

0.3

30/06/20

1.3

4.0

(0.1)

6.5

(13.6)

30/06/21

33.0

27.9

26.4

24.9

21.1

30/06/22

(24.1)

(22.9)

(14.7)

(2.1)

2.2

30/06/23

2.1

5.1

(2.4)

13.8

8.3

Source: Refinitiv. Note: All % on a total return basis in pounds sterling.

Looking over the long term, from its launch in June 1989 to end March 2023, TEMIT’s NAV +3,845.7% total return is substantially higher than the benchmark’s +1,707.2% total return.

In FY23 (ending 31 March), TEMIT’s NAV and share price total returns of +0.8% and +0.5% respectively were ahead of the benchmark’s -4.5% total return. The largest positive contributors to the trust’s relative performance were ICICI Bank (India, +1.3pp, consistently good fundamentals helped by a robust balance sheet and a strong franchise), Prosus (China, +1.1pp, investment company and Tencent’s largest shareholder; this company benefited from easier restrictions in the Chinese internet industry) and Brilliance China Automotive (China, +0.9pp, a car manufacturer whose shares resumed trading after an 18-month suspension; it paid a special dividend from the proceeds of its partial sale of a joint venture with BMW).

On the other side of the ledger, the largest detractors were NAVER (South Korea, -1.1pp, the leading internet and advertising company in the country experienced slower post-COVID growth, there were concerns about expansion into unprofitable new businesses and earnings missed consensus expectations), Americanas (Brazil, -0.7pp, disappointing Q322 results, accounting irregularities and the departure of a new leadership team – the position was sold) and Banco Bradesco (Brazil, -0.5pp, weak Q422 results and exposure to Americanas).

Exhibit 9: Investment trust performance to 30 June 2023

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

TEMIT’s relative performance at end-June 2023 is shown in Exhibits 10 and 11. The trust has experienced a notable improvement since late April 2022, which is starting to feed through into TEMIT’s longer-term record. The trust’s NAV is now ahead of the benchmark over the last one and five years and also modestly ahead over the last 10 years.

Exhibit 10: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to MSCI Emerging Markets

1.3

(0.1)

2.2

4.6

(2.2)

8.2

(0.7)

NAV relative to MSCI Emerging Markets

0.8

0.7

4.0

7.7

(1.5)

7.2

0.5

Price relative to MSCI World

(0.8)

(5.7)

(6.9)

(10.3)

(26.0)

(27.1)

(47.3)

NAV relative to MSCI World

(1.3)

(5.0)

(5.3)

(7.6)

(25.5)

(27.7)

(46.6)

Price relative to CBOE UK All Companies

1.5

(1.2)

(0.8)

(5.7)

(23.1)

3.3

(8.1)

NAV relative to CBOE UK All Companies

1.0

(0.4)

0.9

(2.9)

(22.6)

2.4

(7.0)

Source: Refinitiv, Edison Investment Research. Note: Data to end-June 2023. Geometric calculation.

Exhibit 11: NAV total return performance relative to benchmark over 10 years

Source: Refinitiv, Edison Investment Research

Dividends: Step-up in latest financial year

TEMIT pays regular dividends twice a year, an interim in January and a final distribution in July. In FY23, the trust’s revenue earnings were 5.72p per share, which was a 66.3% increase year-on-year. The proposed total dividend of 5.00p per share is c 1.1x covered and is 31.6% higher than the 3.80p per share distribution in FY22. At-end FY23, TEMIT had revenue reserves of c 11.1p per share, which is equivalent to c 2.2x the FY23 annual dividend.

Exhibit 12: Dividend history since FY18

Source: Bloomberg, Edison Investment Research

Discount: Scope for a higher valuation

TEMIT’s shares are trading at a 12.8% discount to cum-income NAV, which is towards the wider end of the of the 10.1–15.4% range of discounts over the last 12 months. It is wider than the 11.3–11.5% range of average discounts over the last three, five and 10 years. The company regularly repurchases shares with the aim of reducing the volatility of the discount. During FY23, c 19.8m shares were bought back (c 1.7% of the share base) at a cost of c £29.2m; this added 0.23% to TEMIT’s NAV.

A higher level of investor risk aversion has led to wider discounts across the investment trust sector. If sentiment improves, coupled with TEMIT’s improving relative performance, it could mean that the trust is afforded a higher valuation.

Exhibit 13: Discount over three years (%)

Exhibit 14: Buybacks and issuance

Source: Refinitiv, Edison Investment Research

Source: Morningstar, Edison Investment Research

Exhibit 13: Discount over three years (%)

Source: Refinitiv, Edison Investment Research

Exhibit 14: Buybacks and issuance

Source: Morningstar, Edison Investment Research

Fund profile: Largest UK emerging markets trust

TEMIT is the UK’s largest emerging markets investment trust and was launched in June 1989. Its shares are quoted on both the London and New Zealand stock exchanges. The trust is managed by FTEME, a pioneer in emerging markets investing with c $30bn of assets under management.

Chetan Sehgal has been TEMIT’s lead manager since 1 February 2018; he is based in Singapore and has more than 30 years’ investment experience. He was joined in September 2018 by Edinburgh-based Andrew Ness, who has 29 years’ investment experience. The managers aim to generate long-term capital growth by investing in companies listed in emerging markets, or those listed in developed markets that earn a significant amount of their revenues in emerging markets. TEMIT’s performance is measured against the MSCI Emerging Markets Index. There are no specific restrictions on the fund’s geographic or sector exposure but, to mitigate risk, at the time of investment, a maximum 12% of assets may be held in a single issuer, and up to 10% of assets may be invested in unlisted securities (a maximum 2% in a single issuer). Gearing of up to 20% of NAV is permitted.

TEMIT is subject to a five-yearly continuation vote, with the next due at the July 2024 AGM (the July 2019 vote was passed with a 99.95% majority). In May 2019, the board announced a five-year, performance-related conditional tender offer, subject to the next continuation vote being passed. If the trust’s NAV performance lags its benchmark in the five years ending 31 March 2024, the board, at its discretion, will undertake a tender offer for up to 25% of TEMIT’s shares in issue, at a price equivalent to the prevailing NAV minus 2% and the costs of the offer.

Investment process: Bottom-up stock selection

Sehgal and Ness, who are assisted by portfolio analyst Manish Agarwal, are able to draw on the considerable resources of FTEME’s investment team. In recent years, the levels of collaboration and communication within the team have continued to be enhanced; there are regular meetings, both formal and informal, and all analysts and portfolio managers are expected to contribute to investment returns.

The managers employ a long-term approach driven by ‘3S’s’: seeking structural growth opportunities, investing in businesses with sustainable earnings power that are trading at a discount to their estimated intrinsic value, and they believe in responsible stewardship of client capital. TEMIT has a three-step investment process:

Idea generation: there is a team of more than 70 analysts and portfolio managers around the globe, who undertake more than 2,000 company meetings a year. Sehgal and Ness consider that the team’s local presence provides a considerable competitive advantage.

Stock research: the team undertakes rigorous analysis to assess whether a company has sustainable earnings power and to determine a proprietary estimate of its intrinsic worth. FTEME’s research platform has coverage of more than 700 companies. In-depth company models are built to evaluate a firm’s financial strength and profitability, and to project future earnings and cash flow. Industry demand and supply models are incorporated into the analysis, along with country and currency macroeconomic considerations.

Portfolio construction: TEMIT’s strategy aims to deliver outperformance irrespective of the direction of the stock market. The portfolio typically has higher quality and growth metrics than the benchmark, but not at excessive valuations. There is a high-conviction approach with the top 10 holdings generally making up more than 50% of the fund. Portfolio turnover is relatively low at typically less than 20% per year.

At the end of May 2023, TEMIT had a higher dividend yield than the benchmark, and lower trailing P/E, price-to-cash flow and price-to-book multiples. In aggregate, the trust’s portfolio companies are less indebted compared with benchmark companies.

Exhibit 15: Portfolio versus the benchmark (at 31 May 2023)

Portfolio

Benchmark

Dividend yield (%)

3.94

3.41

12-month trailing P/E multiple (x)

9.70

11.24

Price-to-cash flow multiple (x)

5.24

6.15

Price-to-book multiple (x)

1.39

1.56

Net debt to equity (x)

23.31

34.78

Source: TEMIT

Risk management is also a very important part of the process, with scenario analysis undertaken to ensure the managers are not taking unintentional risks. TEMIT has a diversified portfolio of 60–80 positions invested across the market cap spectrum. All holdings are regularly reviewed to ensure analysts’ recommendations are up to date and reflect any changes in a company’s fundamentals. Sehgal and Ness believe that given the wide dispersion of returns between shares in emerging markets, they can generate alpha via stock selection, which is deemed more important than sector and geographic allocation. The trust’s active share typically ranges from 70% to 85% (this is a measure of how a fund differs from its benchmark, with 0% representing full index replication and 100% indicating no commonality); at end-March 2023 it was 73%.

TEMIT’s approach to ESG

ESG factors are an integral part of TEMIT’s research process. Its managers employ FTEME’s three-pillar framework aiming to be an emerging market leader in sustainable investing:

Intentionality: assessing companies’ intentionality towards managing material ESG factors with a proprietary scoring system and linking them into valuation models.

Alignment: mapping the alignment of companies’ products and services to positive and environmental outcomes and United Nations Sustainable Development Goals.

Transition: identifying companies’ transition potential linked to their incremental progress, using FTEME’s on-the-ground capabilities and experience as an active owner to foster positive change.

Where material, climate change/carbon analysis is integrated into the bottom-up research process, focusing on assessing the impact on long-term business values. This is part of the holistic approach of integrating ESG analysis with traditional analysis to gain valuable insights into the quality and risks of investee and potential investee companies. For more information, please see TEMIT’s latest stewardship report.

Gearing

On 31 January 2020, TEMIT entered into a £100m, five-year, 2.089% sterling-denominated, fixed-rate loan with Scotiabank Europe. With effect from 28 September 2022, the term loan was transferred by novation to the Bank of Nova Scotia, London Branch. It also has a £120m, three-year, unsecured, multi-currency revolving credit facility with the Bank of Nova Scotia, which can be drawn down in sterling, US dollars or Chinese renminbi (RMB) at the prevailing market rates at the time of drawdown. The maximum amount of RMB permitted is 45% of the combined £220m debt facility. TEMIT’s managers continue to take a cautious view on borrowing in difficult markets; at end-May 2023 the fund was ungeared.

Fees and charges

Effective from 1 July 2022, TEMIT’s management fee is 1.00% of net assets up to £1bn, 0.75% between £1bn and £2bn and 0.50% above £2bn (previously 1.00% of net assets up to £1bn and 0.80% above £1bn); no performance fee is payable. Despite the lower management fee, in FY23 the trust’s ongoing charges increased by 1bp year-on-year to 0.98%; this was due to a reduction in average net assets during the year offsetting the management fee reduction, which came into effect on 1 July 2022.

Capital structure

TEMIT is a conventional investment trust with one class of share; there are c 1.2bn ordinary shares in issue with a further c 103.8m shares held in treasury. Its average daily trading volume over the last 12 months was c 1.5m shares.

Exhibit 16: Major shareholders

Exhibit 17: Average daily volume

Source: TEMIT. Note: At 24 May 2023 except Lazard Asset Management, which is at 2 June 2023.

Source: Refinitiv. Note 12 months to 3 July 2022.

Exhibit 16: Major shareholders

Source: TEMIT. Note: At 24 May 2023 except Lazard Asset Management, which is at 2 June 2023.

Exhibit 17: Average daily volume

Source: Refinitiv. Note 12 months to 3 July 2022.

The board

TEMIT’s newest non-executive director is Abigail Rotheroe, who joined the board on 1 November 2022. She has more than 20 years of investment experience, most recently as the investment director at Snowball Impact Management, a sustainable and impact-focused asset manager. Rotheroe previously managed retail and institutional Asia-Pacific portfolios in Hong Kong and London for Schroders, HSBC Asset Management and Columbia Threadneedle Investments. She has experience in manager selection, sustainability and impact measurement.

Exhibit 18: Board of directors

Board member

Date of appointment

Remuneration in FY23

Shareholdings at end-FY23

Paul Manduca (chairman since 20 Nov 2015)

1 August 2015

£71,000

25,000

Simon Jeffreys

15 July 2016

£55,287

26,960

David Graham

1 September 2016

£40,000

107,755

Charlie Ricketts

12 July 2018

£40,000

25,000

Magdalene Miller

10 May 2021

£40,000

7,000

Abigail Rotheroe

1 November 2022

£16,667

27,110

Source: TEMIT

Paul Manduca will complete his nine-year tenure as one of TEMIT’s directors on 1 August 2024, so the board is undertaking a search for a new chairman; an announcement will be made in due course.

Shareholders will vote at the July 2023 AGM on the proposed increase in the directors’ annual fees in respect of FY24: chairman +£2.0k to £73.0k; chairman of the audit and risk committee and senior independent director +£2.5k to £58.5k; and independent directors +£1.0k to £41k.

General disclaimer and copyright

This report has been commissioned by Templeton Emerging Markets Investment Trust and prepared and issued by Edison, in consideration of a fee payable by Templeton Emerging Markets Investment Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Templeton Emerging Markets Investment Trust and prepared and issued by Edison, in consideration of a fee payable by Templeton Emerging Markets Investment Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Templeton Emerging Markets Investment Trust

View All

Latest from the Investment Companies sector

View All Investment Companies content

Research: Industrials

Norcros — New CEO likely to pursue existing strategy

Norcros’s final results highlighted a solid FY23 performance, and although we have reduced our estimates to reflect a weaker macro outlook, we believe Norcros has an excellent base to evolve its strategy, which should allow it to unlock significant market share opportunities. We also believe that its key strengths are undervalued and that most, if not all, of the legacy issues, particularly the pension deficit, have been resolved. We have trimmed our valuation from 252p/sh to 246p, implying c 50% upside.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free