Artisan Developing World Heads Off Emerging Challenges
A stake in multinationals buoys this fund when developing markets sink.
A few months short of its fifth birthday, Artisan Developing World (symbol ARTYX) is youthful by mutual fund standards. But before taking the helm, manager Lewis Kaufman spent a decade managing foreign-stock strategies at Thornburg Investment Management, including roughly five years running a diversified emerging-markets stock fund (also called Developing World) whose annualized returns dazzled.
So far, so good for version 2.0: Since its 2015 inception, Artisan Developing World has posted an 11.6% annualized return—ahead of the MSCI index’s 6.2% return and the 5.5% average gain among peer funds. (Returns are through January 31.)
Like many emerging-markets funds, Developing World has a big bet on China. The fund dedicates 35% of assets to Chinese stocks (compared with 34% in the MSCI Emerging Markets index), favoring firms that will benefit from the country’s productive economy and expand alongside China’s growing skilled labor force and middle class.
But an outsize bet on China has been bad news for emerging-markets funds this year. Investors are worried about the coronavirus and its impact on businesses and the economy in China, as well as ripple effects in the region. So far in 2020, emerging-markets funds are down an average 4.2%.
But Developing World returned 0.5% over the same period, cushioned in part by its investments in developed-country multinational firms. Firms such as Visa (V), which hopes to capitalize on a global shift to cashless payments, and Netflix (NFLX), with a subscriber base now more than half non-American, benefit from positive trends in emerging markets but tend to hold up better when emerging-markets stocks hit the skids. Kaufman says the outbreak is likely a short-term problem for Chinese businesses, and that the government has shown a quicker and more thorough response than it did with SARS.
The rest of the portfolio is invested in such markets as Latin America and Southeast Asia. Kaufman doesn’t expect these economies to expand rapidly, so he hunts for firms that provide a product or service in high demand in an underserved market. MercadoLibre (MELI), an e-commerce and mobile payments business in Latin America, is a top holding.