The Money Reporter has replaced Brandes Emerging Markets Value Fund with RBC Emerging Markets Equity Fund on its list of recommended top foreign equity funds.
When we remove a fund from our recommended list, it’s not necessarily because we no longer like the fund. In fact, it’s frequently because we’ve found a more attractive fund we like. That’s the case as we welcome RBC Emerging Markets Equity Fund (Fund code: RBF499) to our recommended list. It replaces Brandes Emerging Markets Value Fund (Fund codes: BIP171 (FE), BIP213 (LSC), BIP271 (DSC)), which we continue to view as a worthwhile holding.
RBC Emerging Markets Equity Fund seeks long-term capital growth. To do this, the fund invests primarily in companies located or active in emerging markets. It follows a blended growth/value investment approach. Its investment process is mostly based on fundamental research, though its manager also considers quantitative and technical factors. Stock selection is based on an understanding of the company, its business and its outlook.
One reason why we prefer RBC Emerging Markets Equity over Brandes Emerging Markets is that the RBC fund is a consistently strong performer while the Brandes fund’s performance tends to be more inconsistent.
Top performer among foreign equity funds
RBC Emerging Markets, which got its start in late 2009, has performed in the top half of the emerging markets equity funds category in five of the past six years. It was a top-quartile performer in four years, a second-quartile performer in one year, and a bottom-quartile performer in one year.
While the fund’s 3.5-per-cent compound annual growth rate for the past five years may not seem impressive, it’s an excellent result in light of the fact that the average fund in the category has returned -2.3 per cent over the same time frame. In each of the past one-, three- and five-year periods, the fund has been a top-quartile performer.
While RBC has consistently performed near the top of the category, Brandes’ performance has been spottier. The Brandes fund has performed in the top half of the emerging markets equity funds category in just one of the past six years. And its -3.3 per cent annualized return for the past five years is below average.
The RBC fund, meanwhile, has been less volatile than the Brandes fund.
Another reason why we prefer the RBC fund over the Brandes offering is its lower expenses. RBC’s management expense ratio is 2.43 per cent versus Brandes’ 2.71 per cent.
RBC Emerging Markets Equity Fund is a buy if you can tolerate high investment risk.
Brandes is a contrarian buy
Though we’ve removed Brandes Emerging Markets Value Fund from our recommended list, we still find investment merit in the fund if you’re a patient investor.
The fund is managed by Bridgehouse Asset Managers, a trade name of Brandes Investment Partners & Co. Charles Brandes launched this firm in 1974. Absolutely devoted to value investing principles, Mr. Brandes modeled his investment style after the father of value investing, Benjamin Graham.
This investment style has led the Brandes Emerging Markets Fund to invest in some of the most out-of-favour countries among emerging markets. For example, the fund has large investment positions in Brazil and Russia, two countries that many money managers have sidestepped. By contrast, the fund has only a small weighting in India, a more fashionable place to invest in emerging markets.
This contrarian investment style has led the fund to underperform its peers in the past five years. Its 3.3-per-cent annualized loss over this time ranks in the third quartile of the emerging markets equity funds category. However, the fund’s 10-year annualized return of 2.9 per cent is above average. The fund, therefore, may appeal to investors who want exposure to a value style. Buy.
Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846
Money Reporter •2/10/16 •