A rebound in the dollar contributed to a difficult month for emerging market stocks.

 

September

2017 Year-to-Date

Since Inception (Annualized)

Inception Date: 11/1/2011

Motley Fool Emerging Markets Fund (TMFEX)

(1.39%)

24.08%

7.06%

FTSE Emerging Markets All Cap China A Inclusion Index

(0.19%)

23.50%

4.74%

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

September brought us the first negative monthly return of the year for the Motley Fool Emerging Markets Fund. We trailed our benchmark slightly, which reduced our year-to-date outperformance gap, though we did maintain our lead.

The month was a weaker one for emerging markets in general as the U.S. dollar, which had been steadily declining relative to most currencies all year, found a bottom and recovered slightly during the month. A stronger dollar reduces the value of foreign currency earnings to U.S. investors, so the appeal of emerging-market companies fades in times of a rising dollar. A few currencies – the Turkish lira and Mexican peso, in particular – weakened sharply against the dollar during the second half of the month.

In this broadly more subdued environment we were equally subdued, not making any trades during the month.

Our best-performing company, Latin American merchant bank Bladex, was up a generous 9% in the month on signs that global trade is picking up after a few years of weakness. That’s good news for the bank’s clients, most of which rely on export demand.

Bladex was joined on the (very short-term) victory stand by Chinese online search giant Baidu (+8.6%) and Thai 7-Eleven operator CP All PCL (+7.6%). On the other end of the spectrum, we had Turkish airport operator TAV Havalimanlari (-19.2%), Georgian (the country, not the state) hospital operator Georgia Healthcare Group (-13.4%), and Saudi Arabian dairy operator Almarai (-12.5%).

September was a tough month for our airport holdings, and Turkey’s recent suspension of tourist visas to U.S. visitors has created further negative sentiment. This is unfortunate, because Turkey had been seeing a nice rebound in tourism since April, with year-to-date visitor numbers up 26%. The loss of U.S. tourists shouldn’t have much direct impact on the country’s tourism industry – visitors from the U.S. make up less than 1% of arrivals – but the broader effects of the political tensions with the U.S. bear watching.

Along with TAV, our two Mexican airport companies, Grupo Aeroportuario del Suerste and Grupo Aeroportuario del Pacifico, declined 6.3% and 7.3%, respectively. The aforementioned drop in the peso is partially to blame, but a travel warning from the U.S. State Department near the end of August and the string of natural disasters affecting the country also didn’t help.

This patch of turbulence is likely to persist for a while, but we still like the long-term prospects for growing tourism and business travel in each of these markets, so we aren’t looking for the nearest exit. We think the near-monopoly positions these companies hold make them attractive places for your money, but we’ll stay alert to developments that might permanently hurt their ability to generate strong cash flows.

After a strong start to the year, emerging markets and the Motley Fool Emerging Markets Fund took a breather in September. While we’re not happy with negative returns or with underperforming our benchmark, we’re also not overly concerned with any single month’s performance.

Even the best companies inevitably face short-term setbacks, but if we’ve done our job well, then we’ve built a portfolio of high-quality companies that can shake off short-term pain and keep creating value for their shareholders year after year.

The Emerging Markets Fund changed its benchmark from the FTSE Global All Cap ex-US (Fair Value 16.00 EST) Net Tax (US RIC) Index to the FTSE Emerging Markets All Cap China A Inclusion (Fair Value 16.00 EST) Net Tax (US RIC) Index on February 28, 2017.

The Emerging Markets Fund changed its name from The Epic Voyage Fund on February 28, 2017.

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