Seneca adds underperforming EM fund to growth portfolio

Seneca Investment Managers has added an underperforming global emerging markets (EM) equity fund to its diversified growth portfolio.

Seneca adds underperforming EM fund to growth portfolio

The HMG Global EM Equity Fund has lagged in performance against the broader EM index since its launch in 2014, Seneca noted on its announcement of the investment.

FE Analytics data shows the fund lost investors 2.4% over the last year, while its benchmark, the MSCI Emerging Markets index, returned 11.4%. Over three years, the fund has returned 4.1% compared to 34.7% in the index.

Seneca said this is because growth in the EM index has been driven by the Chinese technology sector – an area that this fund has no exposure to.

However, Seneca fund manager Tom Delic (pictured) said the firm still sees “strong long-term potential for the fund” and believes “investing in a manager when their style is out of fashion can be a great opportunity”.

The Luxembourg-domiciled fund, run by Paris based team and led by Marc and Paul Girault, focuses on EM-listed subsidiaries of multinational developed market businesses.

Its largest weighting is in the financial services sector (17.88%), followed by utilities (16.89%), consumer defensive (16.18%), communication services (14.96%) and industrials (8.31%), according to Morningstar.

Seneca said portfolio construction takes a “completely index agnostic” approach and focuses on small to mid-caps, which make up 76% of the fund. It has allocations to frontier markets such as Africa.

Delic added: “Subsidiaries are often set up to sell goods and services in the country where they are listed, providing us with genuine exposure to domestic growth within emerging markets, including South America, Eastern Europe and the Pacific Rim.

“The team employs a value philosophy, buying subsidiaries when they are trading at substantial discounts to intrinsic value and are out of favour with other investors, mirroring our own multi-asset value investing approach.”

The Seneca Diversified Growth Fund holds a 4.5% position in EM. It has returned 5.2% over the last year compared to 1.7% in the IA Mixed Investment 40-85% Shares sector. Over three years it has returned 20.2% compared to 15.4% in the sector.

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