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Quarterly Review l 31 December 2020
Brandes Emerging Markets Value Fund
A sub-fund of Brandes Investment Funds Plc
FUND OBJECTIVE The Brandes Emerging Markets Value Fund (the “Fund”) Class I USD returned 20.62% during the quarter,
outperforming the MSCI Emerging Markets Index which rose 19.70%.
Positive Contributors
In November, Pfizer and BioNTech announced positive results from their phase III trial, making the
path to a COVID-19 vaccine clearer. The announcement catalysed a sentiment shift for value-oriented
securities and kicked off the Fund’s strong performance. Many cyclical-oriented companies,
especially those competing in industries heavily impacted by the pandemic, benefited from increased
investor optimism about their post-COVID prospects.
FUND INFORMATION
Within the Fund, financial holdings such as South African Absa Group, Indonesia’s Bank Rakyat
Indonesia and Thailand-based Siam Commercial Bank saw their share prices rebound. Banks had
previously faced a major headwind to their earnings as new accounting rules required them to
provision up front for expected loan losses. However, an improved economic outlook has led to lower
loan loss provisioning expectations over the last few months, which helped alleviate investor concern.
Other contributors included Panamanian airline Copa Holdings, Brazil-based jet manufacturer
Embraer and oil firm Petrobras, South Korean steel manufacturer POSCO and Mexico-based real
estate investment trust (REIT) Fibra Uno. Furthermore, select technology-related businesses
continued to perform well, led by China-based Baidu and semiconductor manufacturer TSMC as well
as South Korean Samsung Electronics.
Performance Detractors
A few holdings in China hurt performance, most notably China Mobile, Alibaba Group and China
South Publishing & Media.
U.S. President Trump’s executive order prohibiting Americans from investing in companies with ties
to the Chinese military sparked a sell-off in China Mobile’s shares. At the end of the year, the New
York Stock Exchange announced that it would start delisting China Mobile’s American depositary
receipts (ADRs) in early 2021.
MORNINGSTAR STYLE BOX™ Meanwhile, Alibaba saw its share price decline after Ant Group, its affiliate digital payment platform
company, unexpectedly had its initial public offering (IPO) cancelled due to intervention by the
Chinese government. The government not only suspended what would have been the world’s largest
IPO, but also subsequently proposed new anti-monopoly regulations, which may jeopardise Ant
Group’s lucrative asset-light business model. We have long been cognisant of the risk of government
involvement in China’s internet companies and have incorporated this in our evaluation of Alibaba, a
company that we believe does not represent a systematic financial risk and in fact plays an important
role in the growth of China’s economy. The share price correction essentially wiped out the value we
attribute to Alibaba’s stake in Ant Group, making it a “free” option for us. As of 31 December, Alibaba
traded at less than 20x earnings excluding net cash, its lowest valuation level since it went public in
2014. Given its growth potential and competitive position as China’s leading e-commerce firm and
one of the world’s largest internet companies, we believe Alibaba offers an attractive risk/reward
tradeoff for long-term investors. We added to the Fund’s position amid the market selloff.
The Fund’s underweight to information technology, the best-performing sector within MSCI Emerging
Markets Index, weighed on relative returns. From a country perspective, the Fund’s underweights to
South Korea and Taiwan also hurt returns relative to the MSCI Emerging Markets Index. IT businesses
make up a significant portion of the index’s allocations to South Korea and Taiwan, making them the
two top-performing countries within the index.
FOR PROFESSIONAL INVESTORS ONLY
PAGE 1BRANDES EMERGING MARKETS VALUE FUND
Sistema (Russia) also performed well, as did Mexican cement
Select Activity in the Quarter company Cemex (especially in the second half of the year).
We initiated on behalf of the Fund a position in Taiwan-based
Largan Precision, the world’s largest manufacturer of camera Current Positioning
lenses by revenue and the second largest by volume.
The Fund underwent a gradual transition over the course of 2020.
Largan commands a leading position in the high-end camera lenses Toward the beginning of the year, we reduced the Fund’s exposure
segment, from which it has generated exceptional returns with to Latin American companies after exiting a number of positions
approximately 60% operating margins in recent years. While the that had reached our estimates of their intrinsic values. As
global smartphone market has declined slightly over the past few opportunities presented themselves during the early part of the
years, a steady increase in the average number of cameras per pandemic, we took advantage of the market drawdown to purchase
phone, combined with consistent upgrades in smartphone camera shares of companies that were, in our opinion, disproportionately
capabilities, has resulted in a stable growth for the camera lens discounted relative to their strong fundamentals. Through our
market. This growth is expected to continue in the years ahead and buying activity, the Fund’s exposure to companies in China and
we expect Largan to be able to sustain growth notwithstanding Taiwan increased meaningfully, although the Fund remained
competitors’ increased technological capabilities and aggressive underweight the MSCI Emerging Markets Index at year end. From a
pricing. The company has a number of strengths that should help sector perspective, we saw a notable shift in the Fund’s weighting
minimise market share loss and allow it to continue generating to the consumer discretionary sector as a result of our divestments
attractive returns. It boasts the largest patent portfolio in the on behalf of the Fund of automobile and auto components holdings
industry and what we see as the best manufacturing technology during the second half of the year. The Fund ended the year with a
with a vertically integrated business model. Moreover, Largan lower allocation to the sector than the MSCI Emerging Markets
remains the “go-to” high-end lens supplier for smartphone Index, quite a change compared to the start of the year when the
manufacturers, which enables it to develop and offer leading edge exposure was one of the Fund’s largest overweight positions.
solutions before its competitors.
We believe the Fund is attractively positioned for a potential post-
As we noted last quarter, we had been materially reducing the COVID recovery. A continued improvement in the fundamentals of
Fund’s exposure to automobile and auto components companies the Fund’s holdings and a re-rating of the companies’ multiples
following their strong share-price appreciation. This continued in could also provide a boost to the Fund returns, as could the
the fourth quarter as we divested the Fund’s last remaining auto- potential strengthening of emerging markets currencies against the
industry holding, South Korean Hyundai Motor. U.S. dollar.
Year-to-Date 2020 Briefing A strong fourth quarter has led many to question how much value
stocks have caught up with their growth counterparts (MSCI EM
The Brandes Emerging Markets Value Fund Class I USD declined Value Index vs. MSCI EM Growth Index) and whether this recovery
4.97%, underperforming the MSCI Emerging Markets (EM) Index, is sustainable. While we do not know what will happen over the next
which rose 18.31% for the 12 months ended 31 December 2020. year, we are optimistic that value stocks are currently well
positioned for the long term given the significant tailwinds we
The period marked another challenging time for value investors, started to see amid the rollout of vaccines, improved outlook for
with typically value-oriented sectors, especially cyclicals (i.e., many value-oriented companies, and most importantly, the
financials, energy), underperforming the overall MSCI EM Index. significant discount that value stocks continue to trade at relative to
Value stocks in general (MSCI EM Value Index) have been a the market (MSCI EM Index) and growth stocks. At the end of the
significant underperformer within the emerging markets equity third quarter, MSCI EM Value Index traded among its greatest ever
space since 2012, and COVID-19 has brought on further obstacles, discounts compared to MSCI EM Growth Index based on price-to-
with companies facing declining demand as an immediate result of earnings, price-to-book and price-to-cash flow multiples. Following
the pandemic feeling the brunt of the correction. value’s outperformance in the fourth quarter, the discount levels for
value relative to growth remained in their second percentiles, which
Specifically for the Fund, underweights to China, Taiwan, and we think continues to bode well for future returns.
technology-related businesses weighed heavily on relative returns.
Additionally, several holdings operating in Latin America performed Thank you for your continued trust.
poorly as the region dealt with a challenging economic outlook and
negative investor sentiment. Significant detractors included Brazil’s
Embraer, Mexico-based Fibra Uno and America Movil, Argentinian
oil and gas company YPF, and Panamanian bank Banco
Latinoamericano de Comercio Exterior. Beyond Latin American
holdings, U.K.-domiciled event organiser Hyve Group, which we sold
on behalf of the Fund in the second quarter, hurt returns, along with
China Mobile.
Notable contributors were mainly holdings in technology-related
businesses led by Baidu, TSMC, Alibaba and Samsung Electronics.
Telecommunication services providers Indus Towers (India) and
FOR PROFESSIONAL INVESTORS ONLY
PAGE 2BRANDES EMERGING MARKETS VALUE FUND
Performance (%)1
Calendar Year Returns (%)1
Growth of $10,000 Since Inception1
Brandes Emerging Markets Value Fund Class I USD $12,810 MSCI Emerging Markets Index $16,240
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Relative Quarterly Impact (%)2
FOR PROFESSIONAL INVESTORS ONLY
PAGE 3BRANDES EMERGING MARKETS VALUE FUND
Top 10 Holdings1 Characteristics1 Capitalization Summary (%) 1
Best Performing Stocks2
Worst Performing Stocks2
Portfolio Changes Trailing Twelve Months1
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FOR PROFESSIONAL INVESTORS ONLY
PAGE 4BRANDES EMERGING MARKETS VALUE FUND
Country Allocation (%)1 Country Changes Trailing Twelve Months (%)
Regional Changes Trailing Twelve Months (%)1
Regional Allocation (%)1
Country Return Impact (%)1
FOR PROFESSIONAL INVESTORS ONLY
PAGE 5BRANDES EMERGING MARKETS VALUE FUND
Top 15 Industry Allocation (%)1 Top 15 Index Industries not in the Fund (%)1
Industry Changes Trailing Twelve Months (%)1
Industry Return Impact (%)2
FOR PROFESSIONAL INVESTORS ONLY
PAGE 6BRANDES EMERGING MARKETS VALUE FUND
Sector Allocation (%)1 Sector Changes Trailing Twelve Months (%)1
Sector Return Impact (%)2
FOR PROFESSIONAL INVESTORS ONLY
PAGE 7BRANDES EMERGING MARKETS VALUE FUND
Brandes at a Glance Fund Service Providers
Share Class Details
1 2
1 .2
FOR PROFESSIONAL INVESTORS ONLY
PAGE 8BRANDES EMERGING MARKETS VALUE FUND
FOR PROFESSIONAL INVESTORS ONLY
Brandes Investment Partners (Europe) Limited | 36 Lower Baggot Street, Dublin 2, Ireland
+353.1.618.2700 | UCITS@brandes.com | brandes.com/ucitsYou can also read
