Nate G. Weisshaar

Portfolio Manager


MFAM Emerging Markets Fund Results: Fourth Quarter 2018

January 15, 2019

Morningstar Rating:

Overall Morningstar rating applies to investor class shares only. Based on risk-adjusted returns, as of 12/31/2018, out of 706 Diversified Emerging Markets Funds.



Q4 2018

2018 Year-to-Date

Since Inception (Annualized)

Inception Date: 11/1/2011

MFAM Emerging Markets Fund (TMFEX)


– 12.20%


FTSE Emerging Markets All Cap China A Inclusion Index


– 14.83%



For a standardized list of performance for the Emerging Markets Fund, please click here. For fund holdings, please click  here.


Bah, humbug! Emerging-market investors will be happy to close the books on 2018, which was mostly a year of disappointment. After starting off well, the combination of rising trade tensions, a strengthening dollar, and localized drama sent the sector sliding.

Those familiar with emerging markets know that volatility is part of the package, but that knowledge is little comfort when you follow up a tremendous 2017 – in which your MFAM Emerging Markets Fund was up 26% — with a double-digit decline in 2018.

We can take some solace, but only some, in knowing that your fund fell less dramatically than the benchmark. For the year, the MFAM Emerging Markets Fund was down 12.2%, largely because of a painful 9.3% drop in the fourth quarter. But while we closed out the year in a depressing manner, we were still able to beat the benchmark by 2.3 percentage points for the year.

As I said, small comfort.

Speaking of small, over the last six months of the year, small emerging-market companies underperformed their larger counterparts by more than 7 percentage points. That isn’t particularly surprising, since smaller companies tend to be considered riskier. So when investors are looking for safe havens, they often abandon smaller companies for the comforting embrace of international giants. Since the companies in your fund tend to be smaller than those in the benchmark, we surely suffered at least a little from our size preference.

Our exposure to Mexico also hurt in the fourth quarter, as newly elected President Andres Manuel Lopez Obrador startled the markets by scrapping a plan to expand the Mexico City airport and briefly supporting a plan, since abandoned, to limit banking fees. With over 9% of your fund in microfinance company Gentera and airport operators Grupo Aeroportuario del Surest and Grupo Aeropuerto del Pacifico, we have far more exposure to Mexico than the benchmark, which has a 3% weighting in the country. These three positions fell 24%, 27%, and 25%, respectively, in the fourth quarter.

The full-year performances for those stocks weren’t quite so dramatic thanks to a strong third quarter, and we don’t believe any of the policy changes made so far have permanently damaged the companies’ operations or competitive advantages. However, we’re watching how things develop with the new president and don’t view the current share prices as the clear opportunities we normally would, given the political risks at play.

While the concerns around Mexico and its new president have some merit, that wasn’t the case for all the companies in your portfolio. The two largest positions going into the fourth quarter, Middle Eastern hospital group NMC Health and South Korean software developer and data-center operator Duzon Bizon fell 19% and 15%, respectively, in the quarter despite no material changes to their operations or prospects. As painful as the fourth quarter was, though, NMC is up 77% and Duzon Bizon 142% since the end of 2016, so this recent retrenchment isn’t overly concerning, and we’re content to keep holding the shares.

The quarter’s top performers were South African telecom Telkom SA, up 22.5%, and Indian bank HDFC, up 10%. As for the full-year performance, the top holdings were Malaysian rubber-glove manufacturer Top Glove, up 40%, and Duzon Bizon, up 56%.

Your MFAM advisors aren’t big on making short-term forecasts, so I’m not going to pretend to have great insight into where emerging markets will go in 2019. Many of the issues that upset markets in 2018 remain unresolved, although we may have some updates on U.S.-China trade matters later in January. On the other hand, valuations in emerging markets already reflect much of the fear and uncertainty in the air.

Forecasts aside, your MFAM Emerging Markets Fund team remains focused on investing in the highest-quality companies we can find and holding them for many years. We’re constantly looking for companies with long growth runways, strong management teams, and durable competitive advantages. We believe that by building a portfolio of high-quality companies – ones that take advantage of downturns to strengthen their competitive positions – and by having the patience to stick with them over the years, we can offset the volatility inherent in emerging-market investing and deliver superior long-term returns for our investors.

Here’s to 2019 and beyond. Way beyond.

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The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. The investment return and principal of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. See additional performance information about each fund at this link: Emerging Markets Fund.

Investing in securities of foreign companies involves risks generally not associated with investments in securities of U.S companies, including the risks of fluctuations in foreign currency exchange rates, unreliable and untimely information about the issuers, and political and economic instability.

Emerging market countries present risks in addition to and greater than those generally associated with developed foreign markets such as lax government regulation and smaller, less liquid securities markets.

Any discussion of individual companies on this page is not intended as a recommendation to buy, hold or sell securities issued by those companies. Holdings may change at any time and are subject to risk. Current and future portfolio holdings are subject to risk.

Note: The Morningstar RatingTM for funds, or ‘star rating’, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. As of 12/31/2018, the Motley Fool Emerging Markets Fund (Investor shares) was rated in the Diversified Emerging Markets Funds category, receiving a three-star rating among 706 funds over a three-year period and a four-star rating among 531 funds over a five-year period.

Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10- year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Past performance is no guarantee of future results.