Emerging-market stocks have pulled back 16.4% from their April high — and Mark Mobius could hardly be happier. “Our attitude is that this is a correction in an ongoing bull market and therefore an opportunity to add to our positions,” he told Barron’s last week. Mobius, a fixture in emerging-market bourses since Reagan was in office, manages $50 billion in assets for Franklin Templeton Investments.
The 75-year-old portfolio manager was a pioneering investor in China, India and Russia, and has been since the 1980s, when those countries got about as many visitors from Wall Street as Nigeria, Kazakhstan, Vietnam and the Ukraine do today. Now he considers those four countries the most promising of the 50 so-called frontier markets that Templeton invests in.
Mobius is snapping up stocks that he believes will grow with consumer spending, even in Egypt, where the MSCI Egypt Index is down 15.1% from its June peak, in response to the “Arab Spring” uprisings across North Africa. His Templeton Frontier Markets fund owns Orascom Telecom Holding (ticker: ORTE.Egypt), an Egyptian phone company with a monopoly in North Korea that Mobius says is turning out to be surprisingly profitable.
The $295 million Templeton Frontier fund lost 2.7% in the 12 months to Aug. 18. The larger, more mainstream Templeton Developing Markets Trust is up 3.5%, while the MSCI Emerging Market Index is up 2.5%.
Other funds are doing even better by keeping an eye not only on the growth story but also on the profitability of companies that trade on local exchanges. The Wasatch Emerging Markets Small Cap fund grew 14.6% over the past 12 months, more than any other global emerging-market fund. That rise came partly from shunning retailers in China. “There are just a lot of players competing for that growth, and it doesn’t accrue to the shareholder,” says portfolio manager Laura Geritz. Instead, she picked a couple of more profitable retailers in Indonesia. Her fund is down 5.5% for the year; the MSCI Emerging index is down 11.9%.
Some funds have been helped by what they avoided. The Virtus Emerging Markets Opportunities fund, which grew 12% over the past 12 months and is down just 1.35% for the year, shuns materials stocks and tech stocks. Portfolio manager Rajiv Jain considers them somewhat dependent on consumer spending in developed countries where consumer credit is shrinking. The Aberdeen Emerging Market fund has performed relatively well by avoiding companies that manager Hugh Young sees as suffering from poor governance.
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