Genesis Emerging Markets underperformed its benchmark over the year to the end of June 2015 – the return on net assets was -1.1% while the return on the MSCI Emerging Markets Index was +3.5%. Unfortunately for shareholders the discount widened as well, from 6.1% to 11.8% and this translated into a -7.2% return to shareholders, over 10% behind the benchmark.
The manager’s report admits that one-year relative performance to the end of the financial year has been disappointing. It says it was impacted by two main elements. First, holdings from the materials and energy sectors were prominent as their balance sheets felt the strain of lower commodity prices and weak market sentiment. Three such holdings were the African oil exploration company Tullow Oil (down 60%), the diversified global mining company Anglo American (down 32%) and First Quantum Minerals (down 33%), all of which had a significant negative impact on relative performance. Second, the underweight in the strong Chinese market also held the portfolio back. Historically the Fund’s portfolio has tended to underperform when dominant markets – such as China – have risen very rapidly over a short period, but (as in 2008-9 following the excess of 2006-7) they say they would expect to see that relative performance recover as the market returns to a more rational viewpoint – as indeed has been the case to some degree during July and August. On the positive side, a number of Indian companies, notably Kotak Mahindra Bank (up 61%), Lupin (up 60%) and Axis Bank (up 50%), were high on the list of contributors, while the portfolio’s overweight in this market was also beneficial. Stock selection gains in South Korea and being underweight in the weak Brazilian market were further positive drivers.
GSS : Genesis shareholders see 10% underperformance in year to end June