Emerging markets fell in February, but our fund remained positive for the year and ahead of its benchmark.

 

February

2018 Year-to-Date

Since Inception (Annualized)

Inception Date: 11/1/2011

Motley Fool Emerging Markets Fund (TMFEX)

 -3.14%

7.92%

8.16%

FTSE Emerging Markets All Cap China A Inclusion Index

 -4.71%

3.09%

5.97%

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

I hope none of you got whiplash last month, as we saw all markets quickly reverse course after more than a year without a down month. The start of February was a harsh reminder of the reality of stock markets – they go up and down.

If there was a silver lining last month, it was that your Motley Fool Emerging Markets Fund lost only 3.14% compared with the benchmark’s 4.71% drop, and your fund remains up nearly 8% at this very early point in the year.

I don’t like to see negative returns any more than you do, but they are a natural part of investing, particularly in the short term. We could see more volatility and negative returns in the coming months, but the fundamentals of the companies in your portfolio remain strong. We are unconcerned with the near-term bumps in the road and continue to expect your holdings to generate value over the long term.

As we’ve said often, our performance will differ from the benchmark in large part because of our relatively low exposure to Chinese companies. In February the minimal exposure was helpful, as China had one of the worst performing markets in the world.

Also helpful was our lack of direct exposure to the oil and gas sector, which was by far the worst performing sector in February.

We didn’t get out completely unscathed, obviously, and over half of the fund’s holdings posted negative returns in the month.

However, we did see continued momentum from some of our January winners, with Duzon Bizon gaining almost 16%; Top Glove, almost 5%, Mitra Adiperkasa, over 4%; and NMC Health, nearly 3%. Far more tame performances than we saw a month ago, but impressive given the sea of negative numbers February had us swimming in.

We made a single trade during the month, adding to our position in Yum China early in the month.

As you can tell from the year-to-date performance numbers, emerging markets – and your fund — are still nicely in positive territory for the year, even after a disappointing February. These down months had been a rarity for a while, but they are to be expected.

At Motley Fool Asset Management, we like to see them – from time to time and in measured amounts – because they often present opportunities. When other investors lose their nerve, that can be our chance to add more great companies to your fund, or add to the ones you already own, at attractive prices.

With markets mostly going up for the past year, there haven’t been many opportunities, or reasons, for your Emerging Markets team to spring to action. If February is any indication, it seems we may get more chances as this year goes on. We’re well rested, well researched, watching, and ready to pounce.

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 2/28/2018, the Motley Fool Emerging Markets Fund (Investor shares) was rated in the Diversified Emerging Markets Funds category, receiving a four-star rating among 665 funds over a three-year period and a five-star rating among 474 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.

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