Transcript
Speaker: Welcome to Uncovering Trusts, a podcast by Edison Group. I'm your host, Fennli Mathers, and today I'm joined by Milos Pabst, Director of Investment Company Content at Edison, to talk about Templeton Emerging Markets Investment Trust, or TEMIT, ticker T-E-M. Milos, as always, thanks for joining us today.
Speaker: Thanks, Finlay. Good to be here. ah it has been a very strong year for T-MIT with exceptional absolute and relative performance, a further narrowing of the discount and some careful portfolio repositioning after an outsized rally in emerging market technology stocks. So let's start with a quick introduction for listeners who haven't come across T-MIT before.
Speaker: Yes, of course. um Launched in June 1989, the trust was the first UK emerging markets investment trust and remains by far the largest with net assets of around £3.2 billion pounds at the end of September 2026. It is managed by Franklin Temperton Emerging Markets Equity with Singapore-based Cheyton Seigel as lead manager since February 2018 and Edinburgh-based Andrew Ness as co-manager since September 2018.
Speaker: Both have more than 30 years of investment experience. The Trust's aim is long-term capital growth from companies listed in emerging markets or listed elsewhere, but earning a significant part of their revenues there.
Speaker: Its comparator is the MSCA Emerging Markets Index. um In that sense, it offers broad access to emerging market equities, although the portfolio is very different from from the index. And what are the managers looking for when they build the portfolio?
Speaker: Well, the philosophy Seigel and Ness follow is built around the three S's, so to speak. um Structural growth opportunities, sustainable earnings power at a discount to estimated intrinsic value, and responsible stewardship of clients' capital.
Speaker: That translates into bottom-up stock selection rather than you know trying to forecast which country or sector will outperform. ah The portfolio typically holds 60 to 90 companies, turnover is usually below 20% a year, and active share has typically been around 70 to 85%. So this is far from an index tracker. It can perform quite differently from its benchmark. And of course, the team behind the managers is an important part of the story.
Speaker: Yes, it is. um It can draw on more than 70 investment professionals across 17 countries. ah The team holds more than 2000 company meetings annually, and its a research platform covers over 700 companies.
Speaker: Analysts build detailed models of earnings, cash flow, and valuations while ah considering in the industry supply and demand and currency and country risks. So I would say that local knowledge and access to management teams are important parts of the investment process. Let's turn to performance. So how has T-MIT fared over the last year? Very well. In FY26, which ended in March 2026, the trust produced an NAV total return of 41.3% and share price total return compared with for the Markets index um all old figures in
Speaker: um Its formal attribution analysis, which is before expenses, shows that stock selection added 9.8% of relative performance and sector allocation another 4.9 points.
Speaker: Parancy and buybacks also helped, although other factors offset some of the gains. The momentum continued. Over the year to September 2026, the NAV returned 51.5% against 31% for the index, and the share price returned 54.2%. And what about over the longer term? Yeah, the longer term record is also strong. To the end of September 2026, the Trust's NAV total return over three years was about 123%, compared with 76% for the benchmark, and over five years, around 101% versus 56%.
Speaker: and over the five years around one hundred one percent versus fifty six percent Now, since inception, it's published and a Vita to return was more than 8,600%, equivalent to an annualized return of about 12.8% versus 9.5% for the benchmark.
Speaker: um While the trust is ahead of its benchmark, um our august and August note showed it's also ranked second of six generous generalist funds in the AIC global emerging market sector over one and three years, and first over five and 10 years. Very good. So what what drove the strong fy twenty six performance Well, SK Hennig's was the largest relative contributor, adding 6.2 percentage points as ah demand and pricing for high bandwidth memory used in AI strengthened.
Speaker: TSMC added 1.7 points, while Hyundai Motor contributed 1.5 points, um helped by you know lower US tariffs on South Korean cars and progress in humanoid robotics at its subsidiary Boston Dynamics.
Speaker: ah However, it wasn't all one-way traffic. ICICI bank detracted 1.7 percentage points, hit by slower loan growth, narrower margins, weaker rupee and higher oil prices.
Speaker: Process cost 1.4 points as Tencent's shares weakened and Genpac detracted 1 point on consons about AI disruption to IT services. So was it all about technology? Not entirely. The managers highlight other areas, including well capitalized banks in emerging markets where financial services are still underpenetrated, as well as some consumer businesses, healthcare and industrial suppliers. Although AI related infrastructure has clearly been a major driver.
Speaker: ah North Asian companies provide much of the global capacity in advanced semiconductors, memory chips and related hardware, which has benefited several of the trust's biggest holdings. So how has the technology, Riley, changed the shape of the portfolio? Quite significantly. has The trust's allocation to technology increased substantially over the past year, reaching around 50% of the portfolio by the end of September compared with 33.1% at the end of September 2025. This reflected both investment decisions and strong share price appreciation among its semiconductor and AI supply chain holdings.
Speaker: The Trust's 50% weight compares to 43.8% for the MSCI Emerging Markets Index. The largest holding, TSMC, was 18.6%, followed by Samsung Electronics at 10% and SK Hynix at 9.4%.
Speaker: Together, those three companies made up roughly 38% of the portfolio, while the top 10 accounted for around 55% of a portfolio of 85 holdings. So, the trust owns many companies, but a relatively small group has driven a large portion of its recent returns.
Speaker: that That sounds like a sizable concentration. So what's the implications for investors? The main risk is that demand or investment in AI infrastructure disappoints. ah For example, if large technology companies slow their spending, um semiconductor earnings and valuations can be cyclical. And the trust also has substantial exposure to Taiwan and South Korea, bringing geopolitical risks.
Speaker: Seigl and Ness are aware of this concentration, particularly in s TSMC. um However, they remain comfortable with TSMC's portfolio rating, reflecting their team's positive assessment of the company's prospects.
Speaker: Their position therefore represents an active investment decision underpinned by their conviction that the company will continue to perform well. nevertheless Nevertheless, they have taken profits in some successful semiconductor holdings and broadened the portfolio, including initiating a position during FY26 in Chinese electric vehicle and battery manufacturer BYD, which is now a top 10 holding.
Speaker: SK Hynix's weight fell from 12.7% the end of June to at the end of September, reflecting share price moves And how does T-MIT's geographic exposure compare with the benchmark?
Speaker: At the end of September 2026, Taiwan accounted for 28.6% of T-MIT's portfolio, ah broadly in line with the index at 28.9%. South Korea was 26.5% compared with 21.4% for the benchmark. So that's an overweight of about five percentage points.
Speaker: China accounted for 20.3%, also broadly in line with the index. um And elsewhere, Brazil was 7.1% against an index weight of 4.1%, reflecting the managers' interest in attractive valuations, commodity prices and the potential for lower interest rates. um They have also avoided Saudi Arabian equities on valuation grounds. And India has long been an underweight for a teammate. Has that changed recently?
Speaker: Well, Seigel and Ness have gradually reduced their underweight, but India remains below the index weight. um For some time, they viewed Indian equity valuations as demanding. um However, market weakness as as earnings fell short of expectations and the US-Iran conflict hit this major oil importer, created opportunities to add selectively, including in technology services and manufacturing.
Speaker: At the end of September 2026, India represented 7.9% of the portfolio compared with 10.7% for the benchmark. um The managers have also added to China the points of weakness, but remain cautious given its rapidly aging population, access capacity and youth unemployment, despite recognizing the country's innovation. And how do the managers see the outlook for emerging markets more broadly?
Speaker: Yes, so the longer term argument is that emerging economies offer structural growth opportunities, including digitalization, rising consumption and industrial upgrading, often at lower market valuations than developed economies. um The IMF's October 2026 World Economic Outlook forecasts ah growth in emerging market and developing economies at 3.7% in 2026 and 4.4% in 2027 compared with 2.1% and 1.8% respectively for advanced economies.
Speaker: um At the end of September 2026, the MSCA Emerging Markets Index traded on a forward price to earnings multiple of around 9.7 times compared with 17.9 times for the MSCA World Index.
Speaker: And then on a trading basis, TeamEats portfolio was on around 13.8 times earnings at the end of September compared with 14.9 times for the index. ah The managers still see opportunities in AI hardware and adjacent suppliers, but are mindful of interest rates, energy prices, geopolitics, and the potential slowdown in hyperscale-up spending.
Speaker: And what about T-Mits discount to NAV? It has narrowed considerably. um At the end of September, the shares traded at a 7.3% discount to NAV compared with around 15% at the start of 2025. The board has committed to share buybacks, maintaining a minimum annual dividend, lower management fees and conditional tender offer for up to 25% of shares if the trust underperforms its benchmark over the five years to the 31st of March, 2029.
Speaker: If triggered, it would be priced at NAV less 2% and costs. um In FY26, the company spent £166.7 million pounds on repurchases at an average discount of 10.2%, adding 0.8% to NAV per share.
Speaker: um The board has stated its intention to repurchase up to £300 million pounds over the following 12 to 24 months. twenty four months um That said, a discount can widen again even when the portfolio performs well. um The board itself says buybacks alone won't eliminate the discount. um Investment performance and investor demand also matter.
Speaker: And what should investors know about dividends, fees and gearing? um Capital growth growth is the priority, but TMI pays dividends twice a year. um The FY26 dividend was unchanged at 5.25 pence a share and was just covered by revenue earnings.
Speaker: At the year end, it had approximately £135.5 million pounds in revenue reserves and a further £433.5 million pounds in special distributable reserves, together more than 10 times the annual dividend, providing a buffer against fluctuating income. Ongoing charges declined from 0.95% to A further management fee reduction took effect on the first of July, setting the annual rate at the first billion pounds of assets
Speaker: and half a percent above one billion pounds with with no performance fee The borrowing facility was raised to £150 million pounds in July 2006, but the actual net gearing at the end of September was only 2.7%. And just before we wrap up, how would you summarise the investment case?
Speaker: and um The Trust offers an actively managed way to invest in emerging markets through an experienced, well-resourced team and a clear stock selection process. Its a longterm this long-term record is strong with NAV outperformance over 1, 3, 5 and 10 years and lower fees and buybacks have improved the shareholder proposition.
Speaker: I think that the trade-off is important to understand. ah The portfolio is concentrated in North Asian technology. Its returns may be sensitive to the AI investment cycle and geopolitical events, and the discount to NAV can move against shareholders, obviously. um A high-conviction strategy can also lag the benchmark for extended periods.
Speaker: um So for investors who understand those risks and have a long-term horizon, the trust offers a distinctive route into emerging market equities. Miloš, thank you very much for taking us through Templeton Emerging Markets Investment Trust. My pleasure, Filiam.
Speaker: You've been listening to Uncovering Trusts, a podcast by Edison Group. For more information on Teemit and other investment companies we cover, please visit www.edisongroup.com.
