The Emerging Markets Fund seeks to maximise total return. The Fund invests globally at least 70% of its total assets in the equity securities of companies domiciled in, or exercising the predominant part of their economic activity in, developing markets. Investment may also be made in the equity securities of companies domiciled in, or exercising the predominant part of their economic activity in, developed markets that have significant business operations in these developing markets.

The Fund underperformed its benchmark over the month.While our underweight position in China was positive, this was more than offset by the impact of the overweight position in India which was the weakest market over the period. In terms of stock selection, Israeli pharmaceutical manufacturer Teva continued to underperform; the shares look undervalued given the continuing growth in sales and earnings. Shares in Chinese oil and gas company CNOOC underperformed slightly as did Indian tobacco manufacturer ITC. The largest gains came from Brazilian equity holdings, bank Itau Unibanco, retailer Lojas Renner and property company Cyrela Realty, which all rose by over 20%. South African telecoms company MTN also rose by over 20%, following an announcement that the company would focus on increasing cash returns to shareholders.
We added to China to reduce our underweight position and reduced exposure to Korea. In China, we made new investments in cement manufacturer Anhui Conch, which should benefit from higher environmental standards forcing competitors to cut capacity, and added to the upstream oil company CNOOC. In Korea, we sold the holding in bank Hana Financial, and took some profits on motor components manufacturer Hyundai Mobis. Elsewhere, we made a new investment in Turkish bank Turkiye Garanti Bankasi, and added to positions in Taiwanese electronics manufacturer Hon Hai Precision and Mexican beverage manufacturer and retailer Fomento Economico Mexicano. We sold the holding in Taiwanese technology manufacturer Mediatek, which is coming under margin and market share pressure, and which funded the purchase of Hon Hai Precision. We also took profits on Brazilian consumer products manufacturer Hypermarcas following strong performance.Economic growth in emerging markets remains strong and resilient; this is leading to a tightening of the relatively loose monetary policies put in place in 2008. Corporate earnings growth also remains robust, with indications of a strong 2011. Against this backdrop, we believe emerging markets equities offer good value on low valuations.The Fund is overweight the financials and consumer sectors and Saudi Arabia, Qatar and India and underweight the materials sector and China, Malaysia and Taiwan. The largest active country position remains the underweight position in China which reflects our concerns about economic deceleration after the government’s moves to cool the property market. This view is also reflected in the underweight position in materials as we expect this sector to be impacted by lower demand growth as a result of the Chinese deceleration.