Emerging markets continue to deliver

Emerging Markets (EM) equities have done better year to date than most people anticipated at the start of the year. In the quarter, EM (+7.1% in USD) continued to outperform DM (+4.4% in USD), leading to a YTD return of 27.7% compared to 14.2% for DM, as measured in USD. A strong global backdrop with improving fundamentals and company earnings across EM combined with a weaker USD, lower rates, lower inflation and stronger commodity prices have all been to the benefit of EM equity markets over the past 18 months. The 10 biggest contributors to returns in the MSCI EM index, out of a total 850 stocks, have contributed almost 40% of the gains over the past 12 months. The tech sector, which is up 57% YTD (in USD), accounts for 43% of gains in EM. Over 40% of the gains are also due to China. As the fund has a big value tilt and a China underweight, the current environment has been a challenging one for SKAGEN Kon-Tiki. With the valuation discrepancy between Growth and Value increasing, we patiently await a comeback as we currently see interesting stock picking opportunities on the back of major sector and geographical divergences.