Templeton Emerging Markets Investment Trust (TEMIT) has been managed by Chetan Sehgal since the beginning of February 2018, when he took over from prior lead manager Carlos Hardenberg. The two managers had worked closely together for a number of years and there will be no change to the investment process. Sehgal will continue to follow Franklin Templeton’s value-based, bottom-up stock selection approach, aiming to generate long-term capital growth. The manager is optimistic on the outlook for emerging market equities, citing above-average earnings growth with below-average valuations versus global equities. TEMIT has recently announced its FY18 results (ending 31 March); its NAV and share price total returns of 12.4% and 13.7% respectively were ahead of the 11.8% total return of the benchmark MSCI Emerging Markets index.
Lead manager Sehgal follows Franklin Templeton’s value-based, five-step investment process: identification of undervalued companies; in-depth fundamental analysis; team peer review; portfolio construction; and portfolio evaluation and attribution analysis. The bottom-up approach means that TEMIT’s portfolio can vary markedly from the benchmark in terms of sector and geographic allocations. Gearing of up to 10% of NAV is permitted (net gearing of 4.1% at end May 2018).
Forecast economic growth for emerging markets is higher than for developed economies – contributing factors include the rate of technological innovation, rising demand from increasing middle classes and rising commodity prices. While emerging market share prices can be more volatile than those in developed markets, their valuations are relatively attractive; as an example, the MSCI Emerging Market index is trading on a c 25% lower forward P/E multiple than the MSCI World index.
TEMIT is currently trading at a 13.6% discount to cum-income NAV. This is higher than the averages of the last one, three, five and 10 years (range of 9.6% to 12.8%). The board actively seeks to manage the discount by regularly buying back shares. During FY18, 3.4% of the share count was repurchased at a cost of c £70m. In FY18, TEMIT’s 15p dividend was 82% higher than in FY17, which was helped by a reallocation of fees; its current dividend yield is 2.1%.