Spotlight on Vanguard Global Emerging Markets Fund

27 November 2018 | Portfolio construction


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Vanguard Global Emerging Markets Fund is managed by Pzena, Oaktree and Baillie Gifford, giving investors a diversified fund for long-term returns

Sarah Gibb-Cohen, Head of Equity Product Management, Vanguard Europe: Vanguard’s Global Emerging Market Fund uses three of our sub-advisers, Pzena, Oaktree, and Baillie Gifford.  Baillie Gifford look for companies with long-term growth potential, whilst Pzena look for companies that are undervalued by the marketplace.  Oaktree have a core investment philosophy which complements the other two managers really well.  By combining these three managers within a portfolio, we believe this fund is a great choice for investors looking for a core long-term allocation to emerging markets. 

Remember, emerging markets tend to be higher risk than developed markets. 

What is the investment objective

Allison Fisch, Pzena Investment Management: The investment objective of this strategy is to expose clients to a portfolio of concentrated opportunities in emerging markets of companies that are very undervalued relative to what they're worth.

Frank Carroll, Oaktree Capital Management: In simple terms, our investment objective is to beat the benchmark.  Our job is to beat the benchmark in up or down markets.  We attempt to do this by putting together a portfolio of 65 solid names that can withstand any environment, and if we have done our job well at the stock picking level, we should outperform the benchmark.

How would you describe your investment philosophy?:

Richard Sneller, Baillie Gifford: The investment philosophy aims to look at growth through three particular lenses.  The first lens is growth that is much longer, longer duration than the market expects.  The second is growth that is faster than is expected by the market.  The final one is opportunities where there hasn’t been growth for maybe many, many years and suddenly the growth opportunity springs to life. 

Allison Fisch, Pzena Investment Management: Our investment philosophy is that were looking to buy companies that are very cheap relative to their normalised earnings power, so what that means is cheap relative to what this company should earn in a relatively benign business environment, and so when we’re coming across these opportunities, usually it's because something bad has happened and the way to think about it is that these are good businesses that have hit a speed bump with temporary problems that the market thinks are permanent.

Frank Carroll, Oaktree Capital Management: Our investment philosophy is that through disciplined deep research on individual companies that we can add value in efficient markets. Emerging markets certainly remain inefficient, certainly remain volatile, and if we are disciplined and stick to what we do, we think that we can add value over time investing there. 

Can you explain your investment process?

Richard Sneller, Baillie Gifford: The investment process is fundamentally focused on encouraging individuals to do things differently, and the two ways that we encourage individuals to think are, first, to the right of the spreadsheet, that is off the page, 2022/2025, and the second is encouraging them to look where other people are not currently looking. 

Allison Fisch, Pzena Investment Management: Our investment process begins with a proprietary screening tool that helps to direct our team to the most attractive potential opportunities, then the portfolio managers on the strategy will choose specific ideas from this screening tool and assign them to analysts who are industry experts, who then research the companies and decide which of them are the most attractive potential investments.

Frank Carroll, Oaktree Capital Management: Our investment process is that, again, we are individual stock analysts, we are individual company analysts, we do this on a global sector basis, because we believe that our analysts can apply what they might learn in one country or region about a sector to another country or region about a sector, and we think that there are lots of lessons that can be learned and transferred across markets.  We construct the portfolio from what we find to be the best 65 individual ideas and that will formulate our macro view and that will formulate our overall portfolio view.  It will come from that bottom-up collection of our 65 best ideas. 

How does the team work?

Richard Sneller, Baillie Gifford: We have a team of nine individuals, we have three scientists, three social scientists, three artists, they are experienced from one-year to 25 years and we encourage them to argue a lot, and from this we don’t get agreement, but we get insights, hence those insights go into delivering our very best ideas. 

Allison Fisch, Pzena Investment Management: We have a research team that is organised by industry globally, so the same analyst who's looking at Hyundai Motor and Dongfang is also looking at Volkswagen and Ford, and this sort of industry expertise has been very helpful for us in emerging markets, particularly over the last decade which has been characterised by so much change. Then from amongst this larger team of research analysts there are four people who are also portfolio managers on the strategy and help to drive portfolio construction and decision making around position sizing.

Frank Carroll, Oaktree Capital Management: Our team is made up of two portfolio managers and eight sector analysts based around the world that report and develop ideas and bring them to the portfolio managers.  The portfolio managers are the ultimate decision-makers of the portfolio.  It is a bottom-up ideas-driven, meaning that the analysts push ideas up to the portfolio managers and not the portfolio managers down to the analysts.

What is your approach to risk management?

Richard Sneller, Baillie Gifford: Risk is something that we always look to embrace, particularly in the context of emerging markets, typically a small slither of client portfolios.  We find the very best way to manage it is to have a broadly diversified portfolio that has lots of individually exciting risk opportunities. 

Allison Fisch, Pzena Investment Management: To us, risk means what's the risk that we might lose our equity stake in this business and so the key to managing that is to know your businesses really, really well and that's why deep fundamental research is so important to our process. In addition to understanding what the upside of a potential business could be, we really try to understand what the downside is as well and invest in situations where the company has good downside protection and that can be in the form of many different things – a strong balance sheet, flexibility in lending lines, extraneous assets or subsidiary businesses that could be sold off, because that way even if the situation deteriorates before the business reaches its full value, we won't lose our equity stake in the business and can even buy more of the stocks if they go down.  

Frank Carroll, Oaktree Capital Management: Risk in emerging markets is – it is always a very popular question.  I often say that if you don’t like the politics in emerging markets, just wait and they will change.  Our approach to risk is get the investment right in the first place, so we want to invest in companies, in managements that we have studied over a long period of time, we understand how they will react to the environment, we understand how their business will do in the environment and, therefore, we spend less time predicting the environment and more time trying to be sure that we have invested in a business that can withstand whatever environment may come.

Investment Risk Information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.

The funds may invest in financial derivative instruments that could increase or reduce exposure to underlying assets and result in greater fluctuations of the fund's Net Asset Value. Some derivatives give rise to increased potential for loss where the fund's counterparty defaults in meeting its payment obligations.

Important Information

This video is directed at professional investors in the UK and should not be distributed to, or relied upon by retail investors.

The material contained in this video is not to be regarded as an offer or solicitation to buy or sell securities not does it constitute legal, tax, or investment advice.

The Authorised Corporate Director for Vanguard Investment Funds ICVC is Vanguard Investments UK, Limited.  Vanguard Asset Management, Limited is a distributor of Vanguard Investment Funds ICVC.

For further information on the fund’s investment policy, please refer to the Key Investor Information Document (“KIID”). The KIID and the Prospectus for this fund is available from Vanguard via our website

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2018 Vanguard Asset Management, Limited. All rights reserved.


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