Portfolio Discussion
Emerging markets (EM) equities demonstrated resilience in Q2 despite enduring geopolitical conflicts and trade tensions, supported by strong domestic fundamentals. As global investors repositioned their portfolios to navigate the rapidly evolving investment landscape, there has been a renewed momentum across the asset class. Taiwan and Korea were the MSCI Emerging Markets Index’s top contributors, while Saudi Arabia was the largest detractor. Our portfolio outperformed the benchmark during the quarter.
Top relative contributors in Q2 included Doosan Enerbility, Cosmax and MercadoLibre (MELI). Doosan Enerbility is a Korean manufacturer of power generation equipment with a strong presence across nuclear, gas and renewable energy solutions. The company recently secured contracts to build nuclear reactors for overseas clients—a key milestone in positioning itself as a foundry of choice for both large nuclear reactors and next-generation small modular reactors. In addition, Doosan Enerbility has expanded into gas turbine manufacturing—engines that are increasingly being used to power data centers. Korea is one of only five countries with the technological and manufacturing capacity to assemble complete gas turbines, giving Doosan Enerbility a meaningful competitive advantage in this space. We believe the company is well positioned to support the global adoption of new energy solutions that are essential to reducing carbon emissions while ensuring reliable energy systems.
Cosmax is a Korean cosmetics manufacturer and global leader in original development and design manufacturing. The stock rose following robust Q1 earnings, driven by early signs of demand recovery in China and continued sales growth in Korea and Southeast Asia. Notably, the company has expanded its presence in Indonesia, where new regulations require all imported and distributed cosmetics products to be halal certified by October of next year. While many cosmetics companies have already implemented the certification, Cosmax’s early adoption—nearly a decade ago—has enabled it to build experience navigating halal compliance standards and support its broader expansion into Muslim-majority markets. Additionally, with domestic capacity expansion completed ahead of schedule, we believe the company is well positioned to sustain sales momentum across both domestic and international markets.
MercadoLibre is the leading e-commerce platform in Latin America. The company’s growth continues to outpace the broader industry, gaining market share in key regions such as Brazil and Mexico. In addition to its core e-commerce business, MercadoLibre has made significant investments in adjacent verticals, including logistics and financial technology. The company recently announced plans to obtain a banking license in Mexico to expand its service offerings and further enhance user experience. These strategic initiatives reflect its ongoing efforts to scale Mercado Pago, the company’s fintech arm. Beyond Brazil and Mexico, MercadoLibre is also expanding into other Latin American markets, including Peru, Columbia and Chile. We believe these efforts will strengthen the company’s digital ecosystem across the region and reinforce its long-term competitive advantage.
Our main relative detractors included E Ink, Alibaba (BABA)(OTCPK:BABAF) and Globant (GLOB). E Ink is a Taiwan-based producer of e-paper technology. Shares declined due to concerns over potential tariff-related disruptions to e-readers assembled in China, such as the Amazon Kindle. While e-readers remain a meaningful revenue stream, their margins are relatively low, and we believe the company has the flexibility to shift assembly elsewhere if needed. In addition, E Ink experienced delays in bringing a new digital signage production line online due to technical bottlenecks. Despite this temporary setback, demand for higher margin electronic label products remains strong, particularly in the US and Taiwan. We remain constructive on the stock and recognize the critical role E Ink plays in the widespread adoption of e-paper technology.
Alibaba is China’s largest e-commerce platform. The stock underperformed largely due to renewed US–China trade tensions, which weighed on investor sentiment. Notwithstanding recent volatility, we remain constructive on Alibaba’s long-term outlook. The company has scaled up investments in artificial intelligence (AI), including the launch of its flagship foundation model, Qwen. As the largest public cloud and AI provider outside the US, we believe Alibaba’s cloud business is well positioned to benefit from growing demand for AI applications. In parallel, the company has been revamping its e-commerce platforms, resulting in strong growth in new users and order volume. While macro uncertainty may continue to pressure the stock in the near term, we believe Alibaba’s strategic investments and platform scale support its competitive advantage.
Globant is an Argentinian information technology services firm that helps global enterprises scale and modernize their digital infrastructure. The stock declined after the company issued 2025 guidance below consensus expectations, driven by cautious client spending and investor uncertainty across key business geographies. Lingering pressure on discretionary IT budgets remains a near-term challenge, with management projecting a slowdown in sales growth even as margins are expected to improve. Despite these headwinds, the company has benefited from secular demand for digital transformation across industries.
Portfolio Activity
During Q2, we initiated a position in Tencent (OTCPK:TCEHY)(OTCPK:TCTZF). Tencent is the largest social network in China—its WeChat platform has more than one billion users and serves as a hub for messaging, gaming, shopping and payments. The company also has a significant presence in the gaming sector, with ownership stakes in several of the world’s largest gaming companies and a leading position in China’s video game publishing and distribution market. Beyond gaming and social media, Tencent is a key player in fintech, cloud computing, digital advertising and enterprise software. Earlier this year, company management engaged in a substantial share buyback program to support the stock. We believe these actions, along with increasing dividend payouts, demonstrate management’s commitment to its shareholders.
We sold our position in NIO (NIO), a Chinese electric vehicle (EV) manufacturer, and reallocated capital to initiate a position in BYD. While we continue to believe in the long-term growth potential of China’s EV market, we view BYD as having a stronger competitive position. The company has consistently outpaced peers, surpassing Tesla in EV sales for the past three consecutive quarters. Additionally, BYD has deepened its vertical integration by manufacturing its own batteries, which improves supply chain control, reduces costs and supports margins in what can be a volatile commodity market. This integration also provides pricing flexibility relative to competitors.
Further, BYD (OTCPK:BYDDF)(OTCPK:BYDDY) has expanded successfully into international markets, including Europe, Latin America and Southeast Asia. We believe the company’s scale, innovation and global reach have helped offset the impact of tariffs and enabled it to gain market share. In our view, these attributes position BYD well for long-term growth.
Perspective
We expect global shifts in public policy, such as those seen in the first half of the year, to remain a key driver of market dynamics in the quarters ahead. These changes are likely to have uneven effects across regions, reinforcing the importance of on-the-ground research and local context. In response, we have continued to travel extensively, meeting with company management teams and other stakeholders to gain firsthand insight into the evolving landscape.
What is clear, in our view, is that the developing policy environment will create both winners and losers. We believe our bottom-up investment approach is well suited to identify companies that can succeed under new market conditions. We also recognize that shifting trade dynamics may create new opportunities across EM. By focusing on fundamentals and maintaining close engagement with company management, we aim to uncover opportunities that are not only resilient to near-term volatility but also positioned to benefit over the long term.
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Carefully consider the Fund’s investment objective, risks and charges and expenses. This and other important information is contained in the Fund’s prospectus and summary prospectus, which can be obtained by calling 800.344.1770. Read carefully before investing. Current and future portfolio holdings are subject to risk. A portfolio’s environmental, social and governance (“ESG”) considerations may limit the investment opportunities available and, as a result, the portfolio may forgo certain investment opportunities and underperform portfolios that do not consider ESG factors. The value of portfolio securities selected by the investment team may rise or fall in response to company, market, economic, political, regulatory or other news, at times greater than the market or benchmark index. Investments in which the team has determined to have sustainable growth characteristics may underperform other securities and may not achieve their sustainable growth potential. International investments involve special risks, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging and less developed markets, including frontier markets. Securities of small- and medium-sized companies tend to have a shorter history of operations, be more volatile and less liquid and may have underperformed securities of large companies during some periods. Such risks include new and rapidly changing political and economic structures, which may cause instability; underdeveloped securities markets; and higher likelihood of high levels of inflation, deflation or currency devaluations. MSCI Emerging Markets Index measures the performance of emerging markets. The index(es) are unmanaged; include net reinvested dividends; do not reflect fees or expenses; and are not available for direct investment. This summary represents the views of the portfolio managers as of 30 Jun 2025. Those views may change, and the Fund disclaims any obligation to advise investors of such changes. For the purpose of determining the Fund’s holdings, securities of the same issuer are aggregated to determine the weight in the Fund. The holdings mentioned above comprised the following percentages of the Fund’s total net assets as of 30 Jun 2025: Doosan Enerbility Co Ltd 3.4%; Cosmax Inc 2.0%; MercadoLibre Inc 3.3%; E Ink Holdings Inc 2.7%; Alibaba Group Holding Ltd 3.5%; Globant SA 0.7%; Tencent Holdings Ltd 3.8%; BYD Co Ltd 1.2%. As of 3 Mar 2022, Russian holdings are valued at zero. Securities named in the Commentary, but not listed here are not held in the Fund as of the date of this report. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual securities. 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