Revolutionary Fund Strategy Sparks Interest in Emerging Markets Investing

The Artisan Developing World Fund’s Secret to Outperformance

Performance

The fund, which has $3.1 billion in assets under management, has gained 19% this year, outpacing its benchmark MSCI emerging markets index by about 16 percentage points, according to FactSet. Its stellar 2023 performance puts it in the first percentile among its peers, according to Morningstar. The fund has an expense ratio of 1.28%.

The Secret Ingredient

Lewis Kaufman, the portfolio manager who has been overseeing this fund since its inception in 2015 said his secret ingredient for outperformance is so-called “passport companies.” These are companies that are based in developed markets but economically tied to emerging markets,” Kaufman said in an interview. “We like them not just for their revenue velocity, but because they sell aspirational products and services.”

Portfolio Composition

By domicile, Artisan Developing World Fund has just 57% of its portfolio in emerging markets. However, the emerging markets exposure should rise to 70% when looking at the economic exposure by revenue, Kaufman said.

Passport Companies

The San Francisco-based manager said Estee Lauder is an example as the cosmetics business is highly correlated with aspirational consumer demand, outbound tourism and duty-free opportunity in China and around the world. Nvidia, the fund’s biggest holding with a 6.7% weighting, is also a passport company as the chipmaker generates a significant amount of sales from China and other developing markets.

Other Investments

Other than those passport companies, the fund also invests in a slew of companies domiciled in emerging markets. For instance, online marketplace MercadoLibre in Argentina, tech conglomerate Sea Ltd. of Singapore and Chinese food delivery giant Meituan. Kaufman said he also invested in Kweichow Moutai, a Chinese high-end spirits company that’s partially publicly traded and partially state-owned.

Kaufman’s Background

The manager, who earned a master’s degree in business administration from Duke University, oversaw a Thornburg Investment Management fund with a similar strategy for six years before joining Artisan Partners in 2015.

Scalability of the Chinese Market

Kaufman said he also invested in Kweichow Moutai, a Chinese high-end spirits company that’s partially publicly traded and partially state-owned. The manager said the company has a market cap of more than $300 billion. In comparison, Diageo, whose brands include Johnnie Walker, Smirnoff, and Guinness, has a market cap of roughly $97 billion. “I think that speaks to the inherent scalability of the Chinese market itself,” Kaufman said.

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