Templeton Emerging Markets outperforms and accelerates buybacks

Templeton Emerging Markets Investment Trust (TEM) has released its annual results for the 12 months ending 31 March 2024.

• Over the 12 months TEM delivered a NAV total return of 7.9%, outperforming its benchmark, the MSCI Emerging Markets Index, which returned 5.9%. TEMIT’s share price total return underperformed however, returning 4.9%, due to its widening discount.
• The top contributors to performance included Taiwan Semiconductor Manufacturing, Samsung Electronics, Petrobras and ICICI Bank. Regional drivers included Taiwan and South Korea, boosted by optimism around artificial intelligence. Latin American markets also contributed positively. Detractors included some Chinese holdings exposed to the sluggish property sector and regulatory pressures on healthcare.
• TEM’s discount widened from 12.6% to 15.4% over the period. While the board made £65.9m in buybacks over the year, it has decided to substantially increase the rate of share buybacks in light of the prevailing discount. The board now intends to repurchase up to £200.0m of shares at open market value over the next 12 to 24 months and continue at a suitable rate as required thereafter.
• 31 March 2024 marked the point at which performance was measured for TEM’s five-year tender offer. As its NAV outperformed its benchmark over those five years, no tender offer was made. The board also announced a new conditional tender. If over the five-year period from 31 March 2024 to 31 March 2029 TEM’s NAV total return fails to exceed the benchmark total return then the board will put forward proposals to shareholders to undertake a tender offer for up to 25% of the outstanding share capital.
• TEM has also implemented a new, lower fee schedule. With effect from 1 July 2024 and 1 July 2025, the middle rate band for fee calculations, for a NAV between £1bn and £2bn, will reduce from 0.75% of assets to 0.7% and then 0.6% respectively. Based on the current net asset value of approximately £2bn, this will result in the blended fee rate reducing from approximately 0.875% today to 0.75% in 2026.
• TEM’s current revolving credit facility has expired, and the board has opted not to renew it given its lack of utilisation. The board and investment managers are exploring alternative forms of gearing such as contracts for difference and other derivatives.

Chetan Sehgal, TEM’s lead portfolio manager, commented:

“It is an interesting time to look at emerging markets. Despite the dynamic nature of emerging markets, we believe that several enduring themes persist. First, we believe their structural growth potential remains superior, driven by an expanding and diverse investment universe with appealing valuations. Second, while navigating challenges such as the COVID-19 pandemic and geopolitical risks, emerging economies have demonstrated remarkable resilience, emphasising the potential for robust growth. Finally, strategic policy decisions, ongoing reforms, and innovation will shape the future of these markets, offering what we believe are significant opportunities for economic progress and investment gains in the years ahead. In summary, emerging markets have evolved, embracing innovation, technology, and diversification. As pivotal players in the global trade map, their adaptability and growth trajectory position them as key drivers of the world economy, making them, in our opinion compelling investment opportunities for investors globally.”