Fund commentary | Q1 2020
Opinions and commentary provided by Schroder Investment Management.
Emerging markets delivered negative returns in the first quarter, and the Fund performed in line with its benchmark.
Overall, country allocation was negative in the first quarter. Overweight positions in Brazil and Russia, both of which underperformed, contributed negatively to the Fund’s performance. Brazilian equities fell sharply, with currency weakness amplifying negative returns. The central bank cut its headline interest rate by 75 basis points to 3.75%. Russian equities and the rouble were negatively impacted by the sell-off in crude oil prices following the failure of OPEC+ talks.
These effects were somewhat offset by underweight positions in South Africa, India and Indonesia, all of which underperformed, as well as the Fund’s cash position in a falling market. In South Africa, currency weakness was a significant drag on market performance. The country’s debt was downgraded to ‘non-investment grade' by Moody’s ̶ the last major ratings agency to hold an investment-grade view. The central bank cut its main interest rate by 1.25% to 5.25% and announced quantitative easing. In India, as the number of COVID-19 cases began to gradually increase, the central bank responded to the virus spread by cutting interest rates by a further 75 basis points to 4.4%. A fiscal stimulus package, equivalent to 0.8% of India’s GDP, was also announced. Indonesia also underperformed amid concerns over the impact of COVID-19. The fiscal response announced by the government is likely to require both multilateral and central bank funding due to a limited domestic investor base, which could pressure the rupiah.
Stock selection overall was positive during the quarter. In South Korea, the off-benchmark holding, Nexon was positive, as stock rose for the video game publisher in the lockdown environment. An overweight to Samsung SDI and LG Chemical held up better than the wider market as the long-term outlook for electric vehicle batteries improved. Stock selection in South Africa was also positive. An overweight to global internet group and technology investor, Naspers, fared better than the wider market, as its holding in Chinese e-commerce and gaming company Tencent proved supportive after lockdowns reinforced demand for its services. A zero-weight to energy and chemical company, Sasol, was beneficial to performance after stock plummeted more than 90% as the company’s debt was downgraded to non-investment grade and concerns mounted that it will require a rights issue to stabilize balance sheets. Stock selection in Brazil also benefitted returns. Overweight positions in pharmacy operator, Raia Drogasil, and electric engineering, automation technology company, WEG, were beneficial as shares of both held up better than the wider market.
In China, stock selection was negative. An overweight position in offshore oil firm CNOOC weighed on returns, as the company’s stock was hurt by the widespread sell-off in crude oil. Additionally, overweight positions in appliance maker, Midea, and sportswear manufacturer, Shenzhou, also negatively impacted returns as stock prices dipped over concerns for the future demand outlook as a result of the economic impact of COVID-19.
|Compound returns %1||Since inception2||7 year||5 year||3 year||1 year||Q1|
|Sun Life Excel Emerging Markets Fund - Series A||-0.4||2.9||1.4||0.2||-11.7||-16.8|
|Sun Life Excel Emerging Markets Fund - Series F||0.6||4.0||2.5||1.3||-10.7||-16.5|
|MSCI Emerging Markets Index||4.6||4.5||2.0||0.5||-12.3||-16.1|
1Returns for periods longer than one year are annualized. Data as of March 31, 2020.
2Partial calendar year. Returns are for the period from the fund’s inception date of September 1, 2011 to December 31, 2011.
Views expressed are those of Schroder Investment Management North America Inc., sub-advisor to select Sun Life mutual funds for which Sun Life Global Investment (Canada) Inc. acts as portfolio manager. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by Sun Life Global Investments (Canada) Inc. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. This commentary is provided for information purposes only and is not intended to provide specific individual financial, investment, tax or legal advice. Information contained in this commentary has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.
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