| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | -1.3% | -1.3% |
Rondure's emerging markets strategy underperformed in Q1 2024 as extreme market concentration in AI semiconductors worked against their diversified approach. Four AI stocks contributed 97% of MSCI EM returns, with Taiwan Semiconductor alone representing 82% of IT sector performance. The manager believes this narrow rally will broaden as emerging market AI stocks trade at better valuations than US peers, with Asian AI giants valued at 12-19x earnings versus Nvidia at 35x. Key catalysts include inventory corrections ending, smooth Taiwan and Indonesia elections removing political risk, China behaving less destructively, and South Korea pursuing governance reforms. India offers strong structural growth despite rate headwinds affecting HDFC Bank. The portfolio maintains Taiwan Semiconductor as the largest position while building positions in companies with weak near-term fundamentals but improving earnings momentum. Risks include US hard landing, renewed inflation, and Nvidia's growth deceleration potentially dragging down all AI stocks rather than enabling broadening.
Emerging markets are positioned for a broadening rally as AI themes expand beyond current semiconductor leaders to include cheaper emerging market AI stocks, while structural improvements in key countries and earnings acceleration from inventory normalization create attractive opportunities in a diversified portfolio trading at reasonable valuations.
The manager expects market broadening within emerging markets as the year progresses, driven by earnings acceleration and the end of inventory corrections. They believe emerging markets are positioned to outperform based on better valuations in AI stocks, structural improvements in key countries, and shifting earnings momentum. The tone is cautiously optimistic about emerging markets breaking out on their own volition.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 15 2024 | 2024 Q1 | 000660.KS, 2317.TW, 2454.TW, 3038.TW, BBL, BBRI.JK, GMXT.MX, HCLTECH.NS, HDB, HEIM.KL, NVDA, PBR, TCS.NS, TSM | AI, China, diversification, emerging markets, India, rates, semiconductors, Taiwan |
2330.TW HDFCBANK.NS |
Emerging markets fund suffered from diversification in AI-concentrated quarter but positioned for broadening rally. Taiwan Semiconductor and AI semiconductors dominated returns while manager's diversified portfolio lagged. Expects earnings momentum to shift to cheaper emerging market AI stocks as inventory corrections end and structural improvements in China, India, and South Korea create opportunities. |
| Sep 30 2023 | 2023 Q3 | 0388.HK, 0700.HK, 2330.TW, 2331.HK, 9142.T, BBRI.JK, FPT.VN, GMXT.MX, GRGS.L, HDFCBANK.NS, KOF.MX, PUM.DE, PXT.TO, REC.MI, TCS.NS, YUMC | China, Currency, emerging markets, interest rates, international, Japan, small caps, value | - | Rondure's emerging markets fund underperformed in Q3 as rising US rates drew capital from international small caps toward Treasury yields. Chinese consumer weakness and small-cap liquidity challenges weighed on performance. However, the portfolio trades at attractive valuations versus expensive US large caps, with higher dividends and better balance sheets, awaiting peak rates and potential China stimulus as catalysts. |
| Jun 30 2023 | 2023 Q2 | 2020.HK, 2120.T, 2331.HK, 3529.TW, 601888.SS, AAPL, ABC.L, ACES.JK, B3SA3.SA, DPH.L, LULU, META, NKE, NVDA, TSM, WESTLIFE.NS | AI, China, Dollar, emerging markets, Fed policy, Onshoring, small caps, value |
B3SA3.SA ACES.JK 2331.HK 2020.HK 2120.T WESTLIFE.NS |
Emerging markets fund underperformed due to narrow AI-driven rally favoring mega-caps over quality value stocks. Portfolio positioned for new globalization benefiting reshoring destinations outside China. Manager sees best value since inception but lacks near-term catalysts due to strong dollar. Maintains conviction in process with structural themes intact despite temporary Fed-driven headwinds. |
| Mar 31 2023 | 2023 Q1 | 002430.SZ, 005930.KS, 051900.KS, 2330.TW, 3088.T, 3391.T, 6415.TW, DMP.AX, GMXT.MX, HCLT.NS, INMART.NS, MELI, PUM.DE, PXT.TO, TECHM.NS, TGS.OL | Banking, China, E-Commerce, emerging markets, India, Mexico, Travel | - | Rondure's emerging markets strategy outperformed in Q1 2023 despite banking sector turmoil, benefiting from underweight financials positioning and strong performance in Mexican transportation, Latin American e-commerce, and select Asian technology stocks. The manager maintains cautious positioning due to valuation concerns while staying overweight Mexico and Southeast Asia, positioning for China reopening benefits and post-Covid travel recovery opportunities. |
| Oct 2 2023 | 2022 Q4 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2024 Q1 |
AIAI themes are driving narrow market concentration, particularly in semiconductors. The manager believes AI rally will broaden beyond current leaders to include emerging market AI stocks trading at better valuations. They see emerging markets positioned well for AI broadening with many stocks benefiting from AI emergence including power suppliers and semiconductor manufacturers. |
Semiconductors Nvidia Taiwan Semiconductor Foundries Chip Designers |
SemiconductorsSemiconductor stocks dominated emerging market returns with Taiwan Semiconductor contributing 82% of MSCI EM IT sector returns. The manager holds three of four key AI semiconductor names but not at index weights. They believe semiconductor earnings momentum will shift to emerging markets as inventory corrections end. |
Taiwan Semiconductor SK Hynix Foundries Memory Chip Manufacturing | |
ChinaChina is starting to behave better and no longer seems to be sabotaging its own economy. Chinese leadership needs to do more for growth but has stopped tripping over their own feet. Stock price multiples are very depressed in the Chinese market, and results have not been bad for their Chinese holdings. |
Chinese Stocks Valuations Policy Growth Market Sentiment | |
IndiaIndia offers the best structural growth in emerging markets and is reasonable on a PEG basis long-term despite expensive surface valuations. The Indian central bank is fighting inflation more aggressively than the US Fed, keeping rates high which is cyclically impacting HDFC Bank. Elections are expected to unfold smoothly. |
Structural Growth HDFC Bank Interest Rates Inflation Elections | |
RatesHigher rates are holding back growth expectations in markets like Brazil that aggressively fought inflation. The manager believes if the US cuts rates, the world can cut rates. Indian central bank has left rates high focusing on disinflation rather than promising cuts. |
Interest Rates Federal Reserve Central Banks Inflation Rate Cuts | |
| 2023 Q3 |
Small CapsThe fund is overweight small-cap stocks which have been a challenging place to invest, especially as declining liquidity is more acute for smaller companies. Small caps have underperformed significantly versus large caps this quarter and year-to-date, creating a drag on performance but potentially better opportunities for active investors. |
Small Cap Liquidity Underperformance Active Management Opportunities |
RatesRising US interest rates are acting as a magnet for global assets, drawing investors away from riskier assets like small-cap international and emerging market stocks toward high-yield risk-free assets like US CDs. The fund believes equities will struggle until US interest rates stop rising and inflation is defeated. |
Interest Rates Risk-free Assets Inflation Monetary Policy Asset Allocation | |
ChinaChinese consumers are more beleaguered than expected after years of Zero Covid policies, causing consumer stocks to struggle. The mood from Chinese corporates ranges from meek to bleak, though stock valuations may already reflect this pessimism. China needs to address its real estate sector and aggressively stimulate its economy to avoid becoming like Japan. |
Consumer Weakness Zero Covid Stimulus Real Estate Valuations | |
ValueThe fund's portfolio trades at significantly lower multiples than US large caps, with higher dividend yields and better balance sheets. International and emerging market stocks appear reasonably priced with potential dual benefits from undervalued currencies and stocks, particularly when measured through purchasing power parity metrics. |
Valuation Dividend Yield Balance Sheets Currency Purchasing Power | |
| 2023 Q2 |
AIArtificial intelligence frenzy spurred investors to bet on companies like Taiwan Semiconductor and others seen to benefit from the emerging technology trend. Hardware technology is getting expensive on the back of the AI theme, though it was cheap at the end of last year. The manager notes they missed the AI-driven surge in semiconductor and hardware technology businesses. |
Semiconductors Hardware Technology Taiwan Automation |
OnshoringThe portfolio is overweight the reshoring, nearshoring, multi-shoring, and friend-shoring theme. The manager believes a new globalization story is at play that largely benefits emerging markets countries, other than China. This new globalization story is viewed as a great story with valuations supporting a long position. |
Supply Chain Manufacturing Mexico Indonesia Vietnam | |
ChinaChinese manufacturing is expected to be weak as export markets curtail spending and manufacturing shifts away from China to other countries. The manager's China positions are mainly tied to economic reopening trades, though these stocks underperformed this quarter. The biggest unknown catalyst would be outsized stimulus from Beijing. |
Reopening Stimulus Services Manufacturing Exports | |
ValueThe manager sees strong value in the portfolio at present, maybe the best they have seen since inception. Value is evident across multiple countries including Indonesia, Thailand, Philippines, Mexico, and China. Small- and micro-cap international and emerging market stocks are described as inexpensive and profitable. |
Valuation Small Caps Emerging Markets Quality Profitable | |
| 2023 Q1 |
BankingThe quarter featured cascading collapse of several U.S. banks including Credit Suisse failure, creating the most serious banking crisis since 2008. Rondure was underweight financials which served them well as the sector was one of the poorer performers during the quarter. |
Credit Stress Regional Banks Financial System |
ChinaChina is the all-important wild card representing 33% of MSCI Emerging Markets Index. Beijing has been largely hostile to private enterprise over the last two years but that is starting to change. China's reopening should have positive ramifications for cross-border travel and benefit South Korean and Taiwanese companies disproportionately. |
China Reopening Cross-border Travel Policy | |
TravelPost-Covid recovery in tourist traffic drove Mexican airports performance, while Thai private hospitals catering to foreign medical tourists rebounded strongly. East Asia's post-Covid reopening presents opportunities for cross-border travel across the region. |
Tourism Airports Medical Tourism Recovery | |
E-commerceMercadoLibre, the largest e-commerce and payment ecosystem in Latin America, was a main contributor to performance. The company has significant room for growth as ecommerce and digital payment penetration rates improve. IndiaMART InterMESH, an Indian e-commerce company, showed strong revenue momentum. |
Digital Payments Latin America India Penetration |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, 2024 | Fund Letters | Rondure New World Fund | 2330.TW | Taiwan Semiconductor Manufacturing Company Limited | Information Technology | Semiconductors & Semiconductor Equipment | Bull | Taiwan Stock Exchange | AI, Foundry, manufacturing, Monopoly, semiconductors, Taiwan, technology | Login |
| Mar 31, 2024 | Fund Letters | Rondure New World Fund | HDFCBANK.NS | HDFC Bank Limited | Financials | Banks | Bull | National Stock Exchange of India | banking, Cyclical, Emerging markets, financials, India, Interest rates, valuation | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | B3SA3.SA | B3 SA | Financials | Financial Exchanges & Data | Bull | B3 (Brazil Stock Exchange) | Brazil, BRICS, Emerging markets, Exchange, Financial infrastructure, Flight to Safety, Inflation Peak | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | ACES.JK | Ace Hardware Indonesia | Consumer Discretionary | Home Improvement Retail | Bull | Indonesia Stock Exchange | COVID Recovery, home improvement, Indonesia, New Globalization, Reshoring, retail, supply chain | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | - | Chroma ATE Inc | Information Technology | Electronic Equipment & Instruments | Bull | Taiwan Stock Exchange | AI, Automated Testing, Electronic Equipment, Hardware Technology, Semiconductor Testing, Taiwan | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | 2331.HK | Li Ning Company Limited | Consumer Discretionary | Apparel, Accessories & Luxury Goods | Bull | Hong Kong Stock Exchange | athletic apparel, China, Consumption, Domestic Recovery, Economic Reopening, services, Sporting goods | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | 2020.HK | Anta Sports Products Limited | Consumer Discretionary | Apparel, Accessories & Luxury Goods | Bull | Hong Kong Stock Exchange | athletic apparel, China, Consumption, Domestic Recovery, Economic Reopening, services, Sporting goods | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | - | China Tourism Group Duty Free Corporation Limited | Consumer Discretionary | Specialty Retail | Bull | Hong Kong Stock Exchange | China, duty-free, Economic Reopening, Luxury goods, services, Tourism, Travel Retail | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | 2120.T | Lifull Co Ltd | Communication Services | Interactive Media & Services | Bull | Tokyo Stock Exchange | digital platform, Foreign Investment, Japan, Micro-cap, Online Services, Property Technology, Real Estate | Login |
| Jun 30, 2023 | Fund Letters | Rondure New World Fund | WESTLIFE.NS | Westlife Foodworld Limited | Consumer Discretionary | Restaurants | Bull | National Stock Exchange of India | Consumer Discretionary, franchise, India, McDonald's, Middle Class, Multi-decade Growth, Restaurants | Login |
| TICKER | COMMENTARY |
|---|---|
| TSM | Taiwan Semiconductor was 82% of the contribution to return of the MSCI EM Index in the Information Technology Sector. We often wonder why Taiwan Semiconductor (TSMC) doesn't squeeze the designers of chips (like Nvidia). There really are very few alternatives to Taiwan Semiconductor's foundry for AI in the short run. Perhaps, it was simply Taiwan elections holding the stock back relative to Nvidia. Now TSMC's stock is off to the races following a benign election. It remains our largest position. It trades at a big discount to Nvidia, but we think it is one of the world's most important companies (yet for risk management we still won't hold it at the index weight, as a war with China would devastate the company). |
| HDB | Year to date, HDFC Bank Ltd has been a drag on our performance in India, a market that continues to do well. This is a self-inflicted but short-run issue specific to the interest rate cycle. The Indian central bank has left rates high and unchanged and is unlikely to cut rates in the near-term, instead focusing on the last mile of disinflation. This is having a cyclical impact on HDFC Bank, as lower margins (from higher borrowing costs) and slowing growth (from higher interest rates on loans) push back expectations for the bank's growth. Yet the long-term potential for the bank has not changed. In addition, the valuation is now at multi-year lows. We think when India cuts rates (or loosens liquidity, which could come sooner than rate cuts) the bank is spring-loaded to grow. |
| NVDA | In our opinion, Nvidia is going to start to face an issue with the law-of-large numbers in their July quarter. This could pose a risk for Nvidia stock (the business doesn't have to get worse, it is just simply a case of optical slowing as the delta in growth should decelerate against very difficult comparisons). We believe another risk is that when Nvidia's numbers slow (from tough comparisons), it could take down all AI-related stocks and the market, instead of broadening the rally to the laggards with better momentum on the horizon. |
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