Genesis Emerging beats falling markets but could do better

Genesis Emerging says, over the second half of 2015, the Fund’s net asset value per share declined from 572p to 514p, a loss of 10.1%. The Fund’s share price also fell by 10.1% during the period with the discount ending 2015 at 11.9%.

Although this result was slightly ahead of the Index, both the Board and the Manager feel that relative returns in 2015 have been disappointing, given that when this kind of environment has occurred in the past, the Manager’s investment approach and process has generally delivered better returns than the market. The Fund’s risk exposure to commodity companies, however, was in hindsight excessively high during the most recent period, and has consequently had a significant negative impact on performance.

In terms of significant drivers of relative performance, one of the largest holdings in the portfolio, SABMiller, rose by 27% after rival brewer AB InBev made a proposal to acquire the company. Elsewhere holdings in China also contributed, led by technology firm AAC and China Resources Beer (up 24% and 37% respectively). Stock selection gains in India and Thailand, and being underweight in the weak Brazilian market were further positive drivers.

Conversely, three commodity-producing companies were the largest detractors over the six month period. Diversified miner Anglo American and copper producer First Quantum fell by 67% and 69% respectively, and Tullow Oil, the African oil exploration and production company, fell by 51%. All three experienced balance sheet stress in an environment of weaker commodity prices and poor market sentiment, but while this means our estimates of their intrinsic value are also now lower, these figures have not declined to the same degree as the stock price.

From a sector perspective, gains were made in financials, where positions including Samsung Fire & Marine Insurance and Kotak Mahindra Bank (up 7.7% and 6.7% respectively) outperformed and in consumer staples due to SABMiller. These gains were partially offset by the losses in the materials sector.

GSS : Genesis Emerging beats falling markets but could do better