Excel Blue Chip Emering Markets Fund Commentary

As of April 30, 2012

Excel Funds Management launched the newly created Blue Chip Emerging Markets Fund in October 2011. The Fund provides Canadian investors direct and indirect exposure to emerging market countries by investing in many best of class, dividend-paying global multinationals with exceptional operations. Investments are primarily sourced from both G7 countries and BRIC nations to invest in the higher revenue and operating profit growth coming from emerging markets. Currency hedging is being used to preserve capital, allowing the emerging market theme to outperform over the longer term.

Emerging markets are in the early stages of a long-term secular bull market. Similar to the super cycles witnessed in the western world at the turn of the 20th century and in the post-World War II era, markets like China and India, as well as other developing nations are poised to grow significantly and alter the
global economic order. Although there may be hiccups along the way, it is important to note that clients are participating in the third phase of dramatic emerging market growth.

Fund Positioning
The launch of the Fund initiated new holdings across ten different countries to diversify and direct the global portfolio towards emerging markets. The U.S. multinational companies targeting emerging markets represent the largest country exposure and almost half of the Fund’s equity weighting. The equity focus remains on countries and companies believed best positioned for the greatest outperformance versus the global MSCI World ($Cdn) Index.

During the past couple of quarters, the United States has demonstrated strong margins and earnings growth especially when focusing on names selling into faster growing markets. Our top-down thesis also overweight’s BRIC nations more heavily compared to slower growing European and Japanese exposure. This global Fund is medium risk rated and allows investors a new way to gain exposure in emerging markets.

Market and Fund Outlook
The developed and developing world faced very different issues in 2011. The developed world continued their battle against excessive leverage, while the developing markets had a shorter term issue with higher interest rates because of inflation.

In 2012, central banks in emerging markets are seeing falling consumer prices, as inflation peaked in the previous summer. Given this trend, we are very excited and optimistic about the emerging market outlook. These countries have lots of room to stimulate their economies through lower interest rates, lower bank reserve requirement ratios, and fiscal stimulus. With these available policy options, emerging economies are well positioned to sustain current growth rates. We believe that this will bode well for our global multinational names in 2012, given their tilt toward emerging markets.

 

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