TIDMGSS
RNS Number : 3508X
Genesis Emerging Markets Fund Ld
20 February 2017
GENESIS EMERGING MARKETS FUND LIMITED
(The 'Company'; the 'Fund')
Registered in Guernsey
(Registration Number: 20790)
STOCK EXCHANGE ANNOUNCEMENT
HALF YEAR REPORT
The Directors of Genesis Emerging Markets Fund Limited announce
the Fund's results for the six months ended 31(st) December 2016.
The Half Year Report will shortly be available from the Manager's
website www.giml.co.uk and also for inspection on the National
Storage Mechanism, which is located at www.morningstar.co.uk/uk/NSM
where users can access the regulated information provided by listed
entities.
INVESTMENT APPROACH
The investment approach is to identify companies which are able
to take advantage of growth opportunities in emerging markets and
invest in them when they are trading at an attractive discount to
the Manager's assessment of their intrinsic value.
NEW SHARES
Shares may be issued twice monthly subject to the following
conditions:
i) the Fund is invested as to at least 75% in emerging market securities;
ii) the Fund will only issue new shares if it is unable, on
behalf of the new subscriber, to acquire shares in the secondary
market at a price equivalent to or below the price at which new
shares would be issued; and
iii) the issued share capital of the Fund is not increased by
more than 10% in any twelve month period.
RESULTS
31(st) 30(th)
December June
2016 2016 % change
--------------------------------- --------- --------- --------
Published net asset value* GBP921.0m GBP838.7m 9.8
Published net asset value* $1,138.2m $1,121.3m 1.5
Published net asset value per
Participating Preference Share* GBP6.82 GBP6.21 9.8
Published net asset value per
Participating Preference Share* $8.43 $8.31 1.5
Share price GBP6.03 GBP5.40 11.6
* Figures are based on the last traded price for investments.
CHAIRMAN'S STATEMENT
Recent periods have generally presented a challenging
environment to investors in emerging markets, but 2016 as a whole
has provided some respite with the MSCI EM (TR) Index (the "Index")
rising 11.6% in US dollar terms over the calendar year. This
headline figure, however, hides significant underlying volatility:
in the six-month period under review in this report, markets rose
substantially during the summer before falling towards the end of
the year in the wake of the US presidential election. Over the six
months to December the Index gained 4.7%.
The steady weakening of sterling against the US dollar following
the UK's EU referendum in June has enhanced returns for UK-based
investors: in sterling terms the Index was up 13.3% over the
six-month period (and up 33.1% over 2016 as a whole).
Against this backdrop, the Fund's NAV per share increased from
GBP6.21 to GBP6.82 over the half year, representing a return of
9.8%. (The Fund's share price rose by 11.6%; the associated
narrowing of the discount meant it ended 2016 at 11.7%). The Fund's
underperformance relative to the Index during the period largely
related to the portfolio's Indian holdings; this and other reasons
- as well as comments on the current environment and investment
outlook for emerging markets - are covered in more detail in the
Manager's Report that follows this Statement.
The Fund held its Annual General Meeting on 8th November; as
ever, we appreciate shareholders' support and thank them for their
approval of all proposals presented at the Meeting. The Fund's
subsequent Shareholder Information Meeting on 10th November
provided shareholders an opportunity to hear from, and ask
questions of, representatives of the Manager. My fellow Directors
and I continue to make every effort to engage with shareholders in
order to hear your comments and understand any concerns you may
have, and ultimately ensure the Fund meets your expectations and
requirements as investors.
Returning to the investment outlook, a number of challenges
remain in place. Looking over the remainder of the financial year,
the pronouncements and actions of the new US government with
respect to international trade and commerce could impact near-term
sentiment towards many emerging markets. And over the longer term,
investors should remain aware of the reality that developing
countries are now in a period of lower growth compared with much of
their recent history.
That said, the Manager's Report below notes some optimistic
signs in the medium-to long-term, and these remain underpinned by
the continued fundamental attractions of investing in emerging
market equities. The Fund is active in markets where levels of
household income are steadily converging with those in developed
countries and where the quality of local institutions continues to
improve - but also where significant pricing inefficiencies can
still be discovered.
In practice, as we have noted on previous occasions, we believe
the employment of an appropriate investment approach is the key to
success: in particular, in a slower-growth and lower-return
environment, higher-quality companies should have more scope to
differentiate themselves and outperform their peers. The ability to
identify these company-specific opportunities therefore remains
crucial, and we believe the Manager's investment team and process
provide an effective framework to seek out these mispriced
businesses in emerging markets; and thus allocate shareholders'
capital profitably.
Hélène Ploix
Chairman
February 2017
DIRECTORS' REPORT
CAPITAL VALUES
At 31(st) December 2016, the value of Equity Shareholders' Funds
was $1,138,160,000 (30th June 2016: $1,121,318,000) and the Equity
per Participating Preference Share was $8.43 (30(th) June 2016:
$8.31), or in sterling terms, GBP6.82 (30th June 2016:
GBP6.21).
PRINCIPAL RISKS AND UNCERTAINTIES
The main risks to the value of its assets arising from the
Fund's investment in financial instruments (principally equity
securities) are unanticipated adverse changes in market prices and
foreign currency exchange rates and an absence of liquidity. The
Board reviews and agrees with the Manager policies for managing
each of these risks and they are summarised below. These policies
have remained unchanged since the beginning of the period to which
these financial statements relate.
Volatility of emerging markets and market risk
The economies, the currencies and the financial markets of a
number of developing countries in which the Fund invests may be
extremely volatile. To manage the risks posed by adverse price
fluctuations the Fund's investments are geographically diversified,
and will continue to be so. The Fund will not normally invest more
than 25% of its assets (at the time the investment is made) in any
one country. While exposure to any one company or group (other than
an investment company, unit trust or mutual fund) is formally
limited to 10% of the Fund's net assets, this exposure is unlikely
to exceed 5% at the time the investment is made.
Foreign currency exposure
The Fund's assets will be invested in securities of companies in
various countries and income will be received by the Fund in a
variety of currencies. However, the Fund will compute its net asset
value in US dollars. The value of the assets of the Fund as
measured in US dollars may be affected favorably or unfavorably by
fluctuations in currency rates and exchange control regulations.
Further, the Fund may incur costs in connection with conversions
between various currencies.
Lack of liquidity
Trading volumes on the stock exchanges of developing countries
can be substantially less than in the leading stock markets of the
developed world. This lower level of liquidity exaggerates the
fluctuations in the value of investments described previously. The
restrictions on concentration and the diversification requirements
detailed above also serve normally to protect the overall value of
the Fund from the risks created by the lower level of liquidity in
the markets in which the Fund operates.
Custody risk
The Fund's key operational risk is custody risk. Custody risk is
the risk of loss of securities held in custody occasioned by the
insolvency or negligence of the custodian. Although an appropriate
legal framework is in place that eliminates the risk of loss of
value of the securities held by the custodian, in the event of its
failure, the ability of the Fund to transfer the securities might
be temporarily impaired. The day to day management of these risks
is carried out by the Manager under policies approved by the
Board.
Manager
In the opinion of the Directors, in order to achieve the
investment objective of the Fund, and having taken into
consideration the performance of the Fund, the continuing
appointment of the Manager is in the interests of the shareholders
as a whole.
A more detailed commentary of important events that have
occurred during the period and their impact on these financial
statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year
are contained in the Manager's Review.
Directors
The following directors served throughout the period under
review (except where noted otherwise): Hélène Ploix, Sujit Banerji,
Russell Edey, Michael Hamson, Saffet Karpat and Dr John Llewellyn.
Michael Hamson did not offer himself for re-election and
accordingly resigned from the Board at the Annual General Meeting
in November 2016.
As at 31(st) December 2016, Participating Preference Shares were
held by Sujit Banerji (10,000), Saffet Karpat (20,000) and Hélène
Ploix (15,000).
Related Party Transactions
During the reporting period, there were no transactions with
related parties which materially affected the financial position or
performance of the Fund. However, details of related party
transactions are contained in the Annual Financial Report for the
year ended 30(th) June 2016 which should be read in conjunction
with this Half Year Report.
Going Concern
The Directors believe that the Fund has adequate resources to
continue in operational existence for twelve months from the
approval date of the Half Year Report. This is based on various
factors including the Fund's forecast expenditure, its ability to
meet its current liabilities, the highly liquid nature of its
assets, its market price volatility and its closed-ended legal
structure. For these reasons, the Directors continue to adopt the
going concern basis in preparing these Financial Statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
In accordance with Chapter 4 of the Disclosure and Transparency
Rules the Directors confirm that to the best of their
knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting' and gives a
true and fair view of the assets, liabilities, financial position
and return of the Fund;
-- the Half Year Report includes a fair review of important
events that have occurred during the first six months of the
financial year, their impact on the condensed financial statements,
and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- the Half Year Report includes a fair review of the
information concerning related party transactions.
Approved by the Board
Hélène Ploix Russell Edey
Director Director
February 2017
MANAGER'S REVIEW
INVESTMENT ENVIRONMENT
After three weak years, it is pleasing to report stronger
performance in 2016 resulting from a recovery in several areas that
had suffered previously: sectors including energy and materials and
countries such as Brazil and Russia. We suspect that two main
factors - a surprising re-acceleration in Chinese credit growth and
fewer-than-anticipated US interest rate increases - underlie this
performance. The sterling based returns of the Fund also benefitted
from the continued weakening of the pound following the UK's EU
referendum in June 2016. Despite markedly different underlying
constituents the Fund's net asset value performed in line with the
MSCI Emerging Markets (TR) Index over the 12 month period, gaining
32.7% in sterling terms. However, over the half year the Fund's NAV
failed to match that of the Index, gaining 9.8% versus an Index
return of 13.3%.
PERFORMANCE
From a country perspective, holdings in Russia added the most
value on a relative basis, largely due to the Fund's overweight
position. Energy company Novatek (up 39%) and diamond miner Alrosa
(up 64%) benefitted from both an appreciation of the ruble and a
recovery in commodity prices. Elsewhere stock selection in South
Korea added substantial value, with Shinhan Financial rising 26%.
These gains were more than offset by the Fund's overweight position
in India. Generic drug manufacturers Sun and Lupin struggled
through both delayed product launches following increased scrutiny
by the US Food and Drug Administration and increasing competition.
The Fund's overweight position in Turkey and underweight position
in Brazil also had a negative impact on the portfolio. In the
latter the prices of certain highly-indebted commodity-producing
businesses that are heavily weighted in the Index - but are not
owned in the portfolio - substantially increased, including
national oil company Petrobras (up 63%) and miner Vale (up
82%).
From a sector perspective, value was added through stock
selection in industrials, materials and consumer companies, where
the Russian retailer Magnit rose 41% and Chinese instant noodle
firm Tingyi gained 40%. These gains were partially offset by stock
selection in the banking sector where Axis Bank (India) fell by
8%.
Looking at individual stocks, contributors were dominated by
Novatek, Alrosa and Anglo American (up 60%), with the latter
continuing to recover following a difficult period in 2015. On the
negative side, Caribbean telecoms company LiLAC (down 28%)
struggled to find a natural investor base following its spin-off
from Liberty Global. Looking ahead, we think the Fund's holding in
LiLAC is an undervalued investment in a competitively-advantaged
telecom business with both revenue growth and cost efficiency
opportunities.
RELATIVE PERFORMANCE ATTRIBUTION IN GBP -
SIX MONTHS TO 31(st) DECEMBER 2016
GEMF vs. MSCI Emerging Markets (TR) Index
Top 10 Stock Contributors % Top 10 Stock Detractors %
-------------------------- ---- ------------------------------ ------
Novatek (Russia) 0.46 LiLAC (United Kingdom) (0.67)
Alrosa (Russia) 0.45 Universal Robina (Philippines) (0.48)
Anglo American (South Sun Pharmaceutical
Africa) 0.39 (India) (0.45)
Sberbank (Russia) 0.37 Axis Bank (India) (0.36)
First Quantum Minerals Pidilite Industries
(Zambia) 0.33 (India) (0.34)
Magnit (Russia) 0.31 Heineken (Netherlands) (0.31)
Tingyi (China) 0.21 Garanti Bank (Turkey) (0.30)
Bidvest (South Africa) 0.20 Petrobras (Brazil) (0.29)
CP All (Thailand) 0.16 Thai Beverage (Thailand) (0.25)
Richemont (Switzerland) 0.16 Vale (Brazil) (0.25)
-------------------------- ---- ------------------------------ ------
Stocks in italics are omissions at end of period
Top 5 Country Top 5 Country
Sector % Contributors % Detractors %
----------------------- ------ ------------- ---- ------------- ------
Industrials 0.68 Russia 1.11 India (1.78)
Consumer Discretionary 0.60 South Korea 0.61 Turkey (0.61)
Materials 0.33 Malaysia 0.40 Brazil (0.59)
Utilities 0.29 Zambia 0.33 Thailand (0.43)
Consumer Staples 0.20 Mexico 0.18 Taiwan (0.40)
Telecoms (0.13)
Real Estate (0.17)
Investment Companies (0.22)
Energy (0.35)
IT (0.69)
Health Care (0.85)
Financials (2.31)
Source: FactSet treating Genesis' affiliated investment company
on a look-through basis
PORTFOLIO ACTIVITY
In terms of activity, the six-month period, was unusually busy
with turnover approaching 28% on an annualised basis. The largest
purchase was the introduction of the South African internet and
entertainment group Naspers - it ended the period as a top five
holding with a weight of 2.3%. The underlying driver of this
investment is to gain exposure to Tencent, the Chinese internet
service provider, at a reduced price.
Elsewhere there was significant activity in the banking sector
with the purchase of Bank Central Asia, the third-largest
Indonesian bank by assets but the largest private bank, and Banca
Transilvania (Romania), while the Indian banks HDFC and Kotak
Mahindra saw their positions added to. Sales in the sector were
dominated by ICBC, which was sold on macro concerns in China,
including continued excessive credit growth and policy makers'
failure to implement needed reforms. The majority of the holding in
Alior Bank was sold in December while Kbank (Thailand) and Saudi
British Bank exited the portfolio along with Santander Brasil and
United Bank for Africa (Nigeria). Away from the banking sector,
some profits were taken in TSMC after its share price rose
significantly over the six-month period. Despite these sales it
remains one of the largest positions in the portfolio. Two other
tech companies- Samsung Electronics and MediaTek-also saw their
positions trimmed while ASM Pacific exited the portfolio.
Other purchasing activity saw a number of recent initiations
from the last year being taken to higher weights including
Heineken, Bangkok Dusit, Jeronimo Martins and LiLAC. Weakness in
the Indian market saw several names added to, most notably Sun
Pharmaceutical and the IT service companies Cognizant and Infosys.
These purchases were partly funded by a reduction in Novatek
(Russia), whose share price had almost doubled from its lows
earlier in the year, while the positions in the mining companies
Anglo American and First Quantum Minerals were further reduced as
commodities continued to rebound.
OUTLOOK
We remain optimistic on expected returns based on both an
improved operating environment and the characteristics of the Fund.
Emerging market economic growth has finally begun to stabilise
after five years of sequential declines and we expect less downward
pressure on emerging market currencies given past real exchange
rate depreciation and significant current account improvements.
In the near term, threats to our constructive view include China
and protectionism. We think Chinese policymakers have a clear
preference for near-term growth over long-run economic reform and
the credit build-up continues unabated. Beyond China, globalisation
has undoubtedly led to huge wealth creation in emerging markets and
much of Asia's success over the past three decades has been built
on export-led growth. President Trump's campaign rhetoric included
renegotiation of trade deals and unilateral protectionist measures
on emerging markets from Mexico to China which, if implemented,
would likely have a negative impact on growth and exchange
rates.
Notwithstanding these short-term challenges, we believe the
long-term emerging markets investment opportunity remains bright.
Growing incomes in developing countries are expected to create
local demand growth for emerging market businesses, against a
background of improvement not only in corporate governance but also
in the quality of the institutional framework in which they
operate.
Genesis Asset Managers, LLP
February 2017
UNAUDITED STATEMENT OF FINANCIAL POSITION
as at 31(st) December 2016 and 30(th) June 2016
(Audited)
31(st) 30(th)
December June
2016 2016
$'000 $'000
------------------- -------------------
ASSETS
Current Assets
Financial assets at fair value
through profit or loss 1,120,312 1,099,567
Amounts due from brokers 397 4,261
Dividends receivable 2,267 4,001
Other receivables and prepayments 211 204
Cash and cash equivalents 17,414 20,245
TOTAL ASSETS 1,140,601 1,128,278
------------------- -------------------
LIABILITIES
Current Liabilities
Amounts due to brokers 494 4,941
Capital gains tax payable 271 141
Payables and accrued expenses 1,676 1,878
TOTAL LIABILITIES 2,441 6,960
------------------- -------------------
TOTAL NET ASSETS 1,138,160 1,121,318
=================== ===================
EQUITY
Share premium 134,349 134,349
Capital reserve 962,192 946,972
Revenue account 41,619 39,997
TOTAL EQUITY 1,138,160 1,121,318
=================== ===================
NET ASSET VALUE PER PARTICIPATING
PREFERENCE SHARE* $8.43 $8.31
=================== ===================
* Calculated on an average number of 134,963,060 Participating
Preference Shares outstanding (30(th) June 2016: 134,963,060).
UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31(st) December 2016 and 31(st)
December 2015
2016 2015
$'000 $'000
----------------------- ------------------------------------
INCOME
Net change in financial assets
at fair value
through profit or loss 15,423 (191,042)
Net exchange losses (203) (136)
Dividend income 12,170 9,816
Securities lending income 45 -
Interest income 46 5
27,481 (181,357)
----------------------- ------------------------------------
EXPENSES
Management fees (7,276) (6,565)
Transaction costs (925) (443)
Custodian fees (551) (460)
Directors' fees and expenses (162) (294)
Administration fees (137) (132)
Audit fees (32) (42)
Legal and Professional fees (49) (45)
Other expenses (113) (105)
TOTAL OPERATING EXPENSES (9,245) (8,086)
----------------------- ------------------------------------
OPERATING PROFIT/(LOSS) 18,236 (189,443)
Finance Costs (3) -
PROFIT/(LOSS) BEFORE TAX 18,233 (189,443)
Capital gains tax (130) 110
Withholding taxes (1,261) (1,049)
PROFIT/(LOSS) AFTER TAX 16,842 (190,382)
----------------------- ------------------------------------
Other Comprehensive Income - -
TOTAL COMPREHENSIVE INCOME/(LOSS)
ATTRIBUTABLE TO PARTICIPATING
PREFERENCE SHARE 16,842 (190,382)
======================= ====================================
EARNINGS/(LOSS) PER PARTICIPATING
PREFERENCE SHARE* $0.12 $(1.41)
======================= ====================================
* Calculated on an average number of 134,963,060 Participating
Preference Shares outstanding
(31(st) December 2015: 134,963,060).
UNAUDITED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31(st) December 2016 and 31(st)
December 2015
For the six months ended
31(st) December 2016
Share Capital Revenue
Premium Reserve Account Total
$'000 $'000 $'000 $'000
------- --------- --------- ---------
Balance at the beginning
of the period 134,349 946,972 39,997 1,121,318
Total Comprehensive Income - - 16,842 16,842
Transfer to Capital Reserves* - 15,220 (15,220) -
------- --------- --------- ---------
Balance at the end of
the period 134,349 962,192 41,619 1,138,160
======= ========= ========= =========
For the six months ended
31(st) December 2015
Share Capital Revenue
Premium Reserve Account Total
$'000 $'000 $'000 $'000
------- --------- --------- ---------
Balance at the beginning
of the period 134,349 1,045,055 33,910 1,213,314
Total Comprehensive Loss - - (190,382) (190,382)
Transfer from Capital
Reserves* - (191,178) 191,178 -
------- --------- --------- ---------
Balance at the end of
the period 134,349 853,877 34,706 1,022,932
======= ========= ========= =========
* Calculated by summing the 'Net change in financial assets at
fair value through profit or loss' and 'Net exchange losses' in the
Unaudited Statement of Comprehensive Income.
UNAUDITED STATEMENT OF CASH FLOWS
for the six months ended 31(st) December 2016 and 31(st)
December 2015
2016 2015
$'000 $'000
--------- --------
OPERATING ACTIVITIES
Dividends received 13,995 12,470
Taxation paid (1,261) (1,154)
Purchase of investments (163,194) (82,836)
Proceeds from sale of investments 157,289 73,205
Interest paid (3) -
Operating expenses paid (9,454) (8,592)
--------- --------
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (2,628) (6,907)
--------- --------
Effect of exchange losses on cash
and cash equivalents (203) (136)
--------- --------
(2,831) (7,043)
Net cash and cash equivalents at the
beginning of the period 20,245 23,729
--------- --------
NET CASH AND CASH EQUIVALENTS AT THE OF THE PERIOD 17,414 16,686
========= ========
Comprising:
Cash and cash equivalents 17,414 16,686
========= ========
1. BASIS OF PREPARATION
The Interim Financial Information for the six months ended
31(st) December 2016 has been prepared in accordance with
International Accounting Standards 34, 'Interim Financial
Reporting'. The Interim Financial Information should be read in
conjunction with the Annual Financial Statements for the year ended
30(th) June 2016, which have been prepared in accordance with
International Financial Reporting Standards ('IFRS').
The unaudited financial statements have been prepared under the
historical cost convention, as modified by the revaluation of
financial assets and financial liabilities at fair value through
profit or loss.
2. COST OF INVESTMENT TRANSACTIONS
31(st)
31(st) December December
2016 2015
During the period, expenses were
incurred in acquiring or disposing
of investments. $'000 $'000
---------------- ----------
Acquiring 456 273
Disposing 469 170
---------------- ----------
925 443
================ ==========
3. SEGMENT INFORMATION
The Directors, after having considered the way in which internal
reporting is provided to them, are of the opinion that the Fund
continues to be engaged in a single segment of business, being the
provision of a diversified portfolio of investments in emerging
markets.
All of the Funds' activities are interrelated, and each activity
is dependent on the others. Accordingly, all significant operating
decisions are based upon analysis of the Fund operating in one
segment.
The financial positions and results from this segment are
equivalent to those per the financial statements of the Fund as a
whole, as internal reports are prepared on a consistent basis in
accordance with the measurement and recognition principles of
IFRS.
As at 31(st) December 2016 and 30(th) June 2016, the Fund has no
assets classified as non-current assets. A full breakdown of the
Fund's financial assets at fair value through profit and loss is
shown in the Country exposure of the Fund's portfolio.
The Fund is domiciled in Guernsey. All of the Fund's income from
investment is from entities in countries or jurisdictions other
than Guernsey.
For Genesis Emerging Markets Fund Limited
J.P. Morgan Administration Services (Guernsey) Limited
February 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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