Loomis Sayles Global Emerging Markets Equity Fund - Natixis ...
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Loomis Sayles Global Emerging Markets
Equity Fund
Quarterly Portfolio Commentary 31-Dec-2020
FUND PERFORMANCE
The Fund significantly outperformed its Reference Index.
QUARTERLY REVIEW
Emerging Market (EM) equities, as measured by the MSCI EM Index, ended 2020 with the best quarterly performance in over
a decade, rallying 19.3% in the fourth quarter, ending the year up 18.5%. This performance is remarkable given the Index was
down almost 24% in the first quarter, which was the worst start in its history. The Index rallied over 70% from its March 23rd
low, to close out the year. The main factor contributing to the rally in Q4 was positive news from pharmaceutical companies
Pfizer and Moderna on the development and rollout of COVID-19 vaccines. Other contributing factors included the culmination
of the much-anticipated US Presidential election as well as the passage of new fiscal stimulus by the US Congress.
The best performing emerging markets during the quarter were Colombia (+47.7%), Hungary (+39.2%) and Korea (+37.2%).
Other markets that outperformed the Index included Brazil (+36.4%), Turkey (+30.0%), Mexico (29.8%), Peru (29.5%), Taiwan
(+22.9%), South Africa (+21.9%) and India (+20.7%). Peru’s rally was particularly notable given the Peruvian Congress
impeached the country’s President; this ultimately led to the country having three Presidents in the span of a week. Egypt was
the only emerging market ending the quarter with a negative return (-6.2%). For calendar year 2020, the top performing
markets were Korea (+42.6%), Taiwan (37.2%), China (27.3%), India (+14.1%) and Argentina (+12.3%). Notably, every other
emerging market ended the year in the red. Comparatively, the S&P 500 Index was up 11.7% for the quarter and 16.3% for
the year. Markets held on to their gains at the end of the year despite the emergence in the UK of a new, more infectious
strain of the virus at the onset of the Christmas travel season.
China, the largest emerging market, while up 11.1% during the quarter, significantly underperformed the Index as investor
sentiment suffered for multiple reasons. First, we had the surprising, last-minute cancelation (by Chinese authorities) of the
highly anticipated Initial Public Offering (IPO) of payments giant Ant Financial (this would have been the world’s largest IPO in
history) which was negatively received. Then, the drafting of regulations by the Chinese administration against monopolistic
practices in the internet sector unnerved investors in the large Chinese internet companies. Moreover, US China tensions
continued, during the quarter, as the current administration prohibited US investors from investing in 35 “Communist Chinese
military companies”, many of which are publicly traded. Finally, several Chinese companies announced plans to delist from
US exchanges and list on Chinese exchanges, to avoid meeting the new US requirements of more audit disclosures. Many of
these companies did not need the additional capital, but were “forced” to issue additional shares, thus diluting existing
shareholders.
On a sector basis, EM outperformance was broad based, as all sectors had positive performance for the quarter, with the
leaders being Information Technology (+34.1%), Materials (+29.8%) and Financials (+24.2%). For the year, Information
Technology (+60.6%), Healthcare (+52.9%) and Consumer Discretionary (+36.6%) delivered the highest returns while Real
Estate (-16.9%), Energy (-15.0%) and Financials (-8.0%) lagged significantly. The Fund does not have any exposure to the
Real Estate and Energy sectors but is overweight Financials, and our financial holdings outperformed significantly.
FOR INVESTMENT PROFESSIONAL USE ONLYThe strong risk appetite during the quarter also boosted some EM currencies with the South African Rand rallying 14.0%
against the dollar, while the Colombian and Mexican Pesos rallied 11.9% and 11.1% respectively. However, despite the rally,
most EM currencies depreciated against the dollar for the year, with the Argentine Peso depreciating the most (-28.7%), its
sixth consecutive yearly depreciation. Other bottom performing currencies, for the year, were the Brazilian Real (-22.6%),
Turkish Lira (-19.9%) and the Russian Ruble (-16.2%). The Chinese Yuan (+6.7%), Taiwanese Dollar (+6.6%) and Korean
Won (+6.1%) were the top performing EM currencies for the year reflecting the strength in their export activity, in addition to
strong virus containment measures.
Overall, the year closed out well with continued economic recovery across EM markets. While the broad EM Manufacturing
Purchasing Managers’ Index (PMI) dipped month-over-month in December, it continued to expand in most EM countries. This
was encouraging given the renewed lockdowns in many countries globally, given new virus cases are close to record highs.
While China’s growth in manufacturing activity is starting to ease, its November services PMI showed the strongest reading in
10 years. Chinese industrial production, property sales and auto sales slowed a bit in December (month-over-month), while
retail sales improved. In India, economic activity in November reached 96% of pre-pandemic levels, up from 84% in August.
Industrial production in Brazil continued its strong recovery and now stands at 2.6% above the pre-pandemic level.
CONTRIBUTORS AND DETRACTORS
Solid stock selection across the board, by sector, country and region, contributed to strong outperformance in the quarter, for
the Fund. Strong sector and country selection also contributed to outperformance. MercadoLibre Inc, Bajaj Finserv Limited
and Despegar.com Corp were the three largest positive contributors to overall return during the fourth quarter. S&P Global
Inc. was the only stock that contributed negatively to performance, detracting 10 bps. The next two bottom contributors
included machine vision company Cognex Corp, and restaurant chain operator Yum China Holdings, Inc.
MercadoLibre
MercadoLibre is the leading e-commerce and financial technology platform in Latin America. The company offers users a
comprehensive eco-system of solutions ranging from B2C1 marketplace buying and selling, to payment processing to B2B2
merchant services and advertising solutions. We believe MercadoLibre’s substantial lead versus competition in Latin America,
in terms of its integrated marketplace and financial services eco-system as well as overall capitalization, positions the
company to maximize its share of the highest-value segments of the market. We expect this leadership to translate into an
attractive medium-term revenue Compounded Annual Growth Rate (CAGR) of 48%, driven by Gross Merchandise Value
(GMV) and Total Payment Value (TPV) growth of 29% and 67%, respectively. MercadoLibre’s stock increased over 55%,
during the quarter, driven by further acceleration in both marketplace GMV and Off-Platform TPV. MercadoLibre also noted a
positive trend of increasing marketplace engagement (i.e. units and value sold per unique user) on its incremental new
customer cohorts during Q2 and Q3 of 2020. This is consistent with the theme of increased e-commerce penetration and
adoption across all of Latin America (growing from 6% of retail sales in 2019 to 10-11% in 2020).
Given the complexity and broad geographic footprint of MercadoLibre’s many businesses, we often leverage independent
third-party data providers to get a better estimate of intra-quarter trends in GMV growth and relative performance of underlying
countries and product categories. We believe this type of analysis, which is consistent with our private equity approach, has
been a key competitive advantage versus the rest of the market during 2020. Our independent third-party data sources
indicated continued acceleration of growth in Q2 and Q3, while consensus estimates incorrectly assumed sequential decline.
This deviation became particularly acute following the 20% correction in MercadoLibre’s stock through the middle of
September and served to increase our conviction in our original thesis. Leveraging this additional research also afforded us an
attractive opportunity to meaningfully increase our overall position size.
While MercadoLibre enters 2021 with a much more difficult base of comparison following the strong performance in 2020, we
continue to see positive development in short-term operating performance versus market expectations. Overall, MercadoLibre
remains a core holding in our Fund based on its clear market leadership in Latin America and strong medium-term growth
potential.
Bajaj Finserv
Bajaj Finserv is a diversified financial holding company, based in India, with controlling stakes in market-leading consumer
lending and insurance companies Bajaj Finance, Bajaj Allianz General Insurance, and Bajaj Allianz Life Insurance. The group
serves as the financial services arm of the Bajaj Group of companies, whose interests in India date back to the 1920s and
1 Business to Consumer
2 Business to Business
FOR INVESTMENT PROFESSIONAL USE ONLYrange from automotive to commodities and electrical equipment to financial services. The group is known for its strong track
record with respect to corporate governance and capital allocation. Bajaj Finance is the largest subsidiary of Bajaj Finserv
accounting for almost 2/3rd of its group Sum of the Parts (SoTP) value. We believe Bajaj Finserv offers the attractive
combination of market leading franchises in the secular growth, life and general insurance space, India’s highest-quality Non-
Bank Financial Company (NBFC) (Bajaj Finance) in terms of returns and asset quality, and an overly discounted valuation due
to the group’s holding company structure. Through Bajaj Finserv, we gain exposure to Bajaj Finance at an almost 35%
discount to spot valuation, which would be the equivalent of receiving both Bajaj Allianz Life and General Insurance for free.
Over the medium-term, we expect Bajaj Finance to grow its Pre-Tax Profit at an attractive 26% CAGR on the back of growth
in consolidated Assets under Management (AuM) at an 18% CAGR.
Bajaj Finserv has been a holding since Fund inception based on our view that core subsidiary Bajaj Finance would continue to
deliver sector-leading growth in AuM; supported by high quality underwriting, as evidenced by the company’s long-history of
stable provisioning and low ratios of non-performing loans across various market cycles. However, despite the high quality
and strong pedigree of the business, Bajaj Finserv stock fell over 60% from its pre-COVID peak in January 2020 to its low in
May, following India’s severe lockdown and market concerns about the viability of Bajaj Finance’s largely unsecured
consumer loan book. Based on our years of engagement with the company, including comprehensive on-the-ground research
with major customers and competitors, we determined that these fears of adverse asset quality were overdone. Market
valuation was at a six-year low for core subsidiary Bajaj Finance on a Price to Book basis, therefore providing a considerable
margin of safety. Given the rare opportunity to increase exposure, to a very high quality player in the Indian financials sector at
effectively distressed valuations, we materially increased our weight and positioned ourselves for a gradual recovery.
However, this recovery materialized much faster than expected as competitors and other industry participants reported better
than expected monthly updates on asset quality. This recovery largely alleviated investor fears of a deep and painful asset
quality cycle and Bajaj Finserv’s stock price increased over 52% during Q4.
Going forward, we expect a strong earnings recovery from core subsidiary Bajaj Finance given sector-leading stock of
provisions versus AuM (indicating a very high buffer for loan losses or eventual write-backs) and rapidly recovering loan
origination and AuM growth. On the Life Insurance side, Bajaj Finserv continues to benefit from launch of new
bancassurance3 distribution partnerships, while Bajaj General Insurance is a market leader for P&C (Property & Casualty)
Insurance in India. Overall, we view Bajaj Finserv as a very high quality financial services franchise in India that has the ability
to continue delivering strong growth and returns over the medium-term.
Despegar
Pan-Latin American (Latam) Online Travel Agency (OTA) Despegar’s stock soared 95% during the quarter. We believe
Despegar has clear leadership, in a fragmented Latam travel market, with a long runway for 20% compounding growth and
tremendous operating leverage. However, in the last two quarters, the impact on the Latam travel industry from pandemic
lockdowns was so severe that Despegar revenues became negative (refunds outpaced customer demand). Amidst near-term
uncertainty, investors left Despegar for dead as the stock fell to a level that implied the company was valued slightly higher
than the balance of its cash reserves. Despite the dire situation, Despegar raised capital to strengthen liquidity, while
simultaneously remaining aggressive with M&A4, to consolidate the fragmented Latam travel market and set up a stronger
post-pandemic position, as discussed in our Q3 commentary. Upon successful development of the COVID-19 vaccine,
investors realized travel demand would likely return alongside vaccine distribution, and investors started to focus on
Despegar’s potential instead of its liquidity.
Despite the setback, we believe that Despegar has indeed achieved an even stronger competitive position with the acquisition
of BestDay Travel Group. Consumer adoption of online services further accelerated during the pandemic, while brick-and-
mortar, mom-and-pop travel agencies likely suffered major setbacks. Increasing online adoption of consumer services, such
as customer support, has also reduced the need for costs, such as expensive call-centers, in favor of more efficient online
chat. Global OTA competitors, such as Booking Holdings, are focusing on recovery in North America and Europe, instead of
the fragmented Latam market. Airlines, hotels, and tour operators that have survived, are focused on capturing pent-up
demand; a situation favorable for major customer lead-generators such as Despegar. In addition, Despegar’s Argentine Peso
revenue mix has effectively fallen to zero; thus setting up a very low base for growth without currency depreciation pressure.
Therefore, we have kept our large position in Despegar, as it remains one of our purest beneficiaries of the post-Covid
recovery.
3 A partnership between a bank and an insurance company allowing the insurance company to sell its products to the bank's client base.
4 Mergers and Acquisitions.
FOR INVESTMENT PROFESSIONAL USE ONLYS&P Global
S&P Global is a provider of credit ratings, investing software, and benchmarking services for the global capital and commodity
markets. We invested in S&P Global based on the large bond market growth opportunity in China, as well as a long tail of
subscription revenue growth across all business segments; steadily improving margins from operating leverage and process
automation, and significant capital returns. S&P also has a majority ownership in Indian ratings agency Crisil.
China began allowing foreign bond rating agencies to apply for licenses in 2017 and last year, S&P Global officially opened its
office in China and obtained a license to issue local Chinese bond ratings. Historically, Chinese bonds have been unable to
attract international investors, due to a lack of reliable ratings, as local bond rating agencies have historically given AA or
higher ratings to over 85% of Chinese corporate debt. For S&P, less than 10% of global corporate debt is rated AA or higher.
We believe China is a $10 Trillion bond market opportunity for S&P.
The first half of 2020 was a boom for bond issuance as dovish monetary policy pushed borrowing rates to lows, while at the
same time disruptions from the pandemic forced companies to issue debt to shore up liquidity. However, after a very strong
2019 and a strong first half in 2020, we entered a period of high comparable base for bond issuance growth. As a result, S&P
predicts that 2021’s global bond issuance volume may decline low-single digits causing investor sentiment in S&P stock to
sour.
While we acknowledge that S&P’s transactional ratings segment is a volatile business, we believe the ratings business (less
than a quarter of revenue mix) will continue to compound in the medium to long term from the China opportunity, growth in
nominal GDP, and price increases. We also believe that S&P’s software businesses (CapIQ, Market Intelligence, Platts, and
capital market data services) can continue to see compounding growth from market share gains, increasing spend from
increasingly sophisticated customers, new international customers, and price increases. S&P’s benchmarking services
continue to expand by creating new emerging markets’ country-specific indices such as the S&P BSE (Bombay Stock
Exchange) Sensex for India and the S&P Korea Bond Index. S&P also continues to provide more innovative technology: for
example, S&P Kensho is a real-time financial artificial intelligence and analytics engine that powers the real-time financial
analytics used on CNBC. We are in awe that while S&P has incremental revenue growth across all segments, the company
needs very little additional variable cost as the company has continued to automate operations. Since 2015, S&P’s revenue
has grown nearly 40% while total expenses have grown only 4%.
Cognex
Machine vision specialist Cognex has had strong stock performance, but we have gradually reduced, and eventually exited,
our position in Q4 due to lower expected target returns. While we continue to believe in the long-term growth potential for
machine vision applications in manufacturing, Cognex is facing multiple years of tougher growth, as 2020 was a big year for
its biggest customer Foxconn (via Apple), and 2021 – 2022 will likely be lighter capex years. Cognex stock was up over 26%
during the quarter and over 68% since inception. Despite the strong performance, the stock’s contribution to performance was
minimal, as we had been gradually reducing the position due to a reduced IRR5.
Yum China
Yum China operates China’s leading restaurant concepts, including KFC and Pizza Hut brands, as well as brands such as
East Dawning, Little Sheep, Huang Ji Huang, Taco Bell and COFFii & JOY. Yum China is the largest restaurant company in
China, operating 7,922 company owned stores and 2,225 franchised and affiliated stores as of Sep 30, 2020.
Yum China has been an investment since Fund inception. At the time, we believed the company’s strong brand equity and
management quality would lead to strong growth, in the underpenetrated Chinese market, which would benefit from the
structural growth of Chinese discretionary spending. Since we made the investment, the company’s results and share
performance have met our expectations. Yum China’s strong digital and delivery platform, innovative menu and seemingly
flawless execution by management have helped the company strengthen its position during a period of significant
uncertainties. As a result, shares of Yum China have outperformed the industry.
While the secular growth opportunity for Yum China has not changed, it’s recent multiple expansion reflects high expectations
of recovery and has lowered our IRR for the stock. Therefore, we have trimmed back our position in the stock, which has
resulted in a positive, though small, contribution to return in the fourth quarter.
5 Internal Rate of Return.
FOR INVESTMENT PROFESSIONAL USE ONLYDuring the quarter, we finished selling our positions in Kingdee and Cognex. These stocks had rallied to our multi-year target
prices, thus their IRRs became unattractive relative to other stocks in the portfolio. We also became investors in Wuxi
Biologics, a leading global platform offering solutions to discover, develop and manufacture biologic drugs from concept to
commercial manufacturing. Wuxi is the largest biologics’ Contract Development and Manufacturing Organization (CDMO) in
China with a 79% market share. The company has been rapidly expanding capacity to become the largest CDMO, and one of
the largest CMOs (Contract Manufacturing Organizations), globally. Wuxi is one of only four global CMOs that has approvals
from the US Food and Drug Administration, European Medicines Agency and China’s National Medical Products
Administration (NMPA).
The CDMO industry has strong long-term structural growth as spending on biologic drug development is expected to grow at a
55% CAGR in China, and 22% globally, over the next 5 years; driven by significant under-penetration of biologic drugs in
China, global drug development for new infectious diseases and improved biopharma products for existing diseases. Wuxi is
well positioned to enjoy this growth due to 1) its strong track record with major clients such as Pfizer, AstraZeneca, Eli Lily,
GSK, Celgene, J&J, and Takeda and 2) market leading execution in the NMPA environment including fast patient enrollment
and efficient project management. The company also has high quality management with decades of collective experience in
leadership roles in global biologic companies such as Merck and Eli Lily. Furthermore, Wuxi can build capacity based on high
visibility demand, as the company engages with the client early starting with drug discovery, unlike many other CMO
companies who mainly focus on commercial manufacturing. As biologics’ drug development requires high confidentiality,
complicated approval procedures and vast amounts of data management, Wuxi can leverage its early stage involvement to
secure more late stage projects and gain market share in commercial contracts. Given Wuxi’s backlog and new orders, project
types and conversion rates, we estimate the company’s revenues and earnings-per-share could grow at a CAGR of 44% and
46% respectively, over the next four years.
In the fourth quarter, the largest overweight and contributor to return in the portfolio, on a sector basis, was financials, and on
a country basis, was India. We increased our exposure to financials during the depths of the market selloff in spring of last
year. While the selloff was understandable given the uncertain economic outlook at the time, we believed that the price action
in many financial stocks was too severe, reflecting valuations not seen since the global financial crisis. In response to the
pandemic, many EM banks and other financial companies provisioned excessively due to concerns about worsening asset
quality. They pulled back from lending, hoarded capital to maintain a defensive position, and suspended dividends. EM central
banks also resorted to unconventional measures to help protect the financial sector, including loan moratoriums, easing of
loan classifications, loan restructurings and relaxing non-performing loan (NPL) recognitions. These measures were in
addition to the monetary and fiscal stimulus unleashed by some developed and EM central banks. As a result, the EM
financial sector, for the most part, has been able to survive the storm quite well, incongruent with the initially dire view of the
equity markets. We believe a rebound in growth in EM economies should lead to a normalization of provisioning expenses
and a recovery in credit growth. EM banks have remained well capitalized, and EM regulators that suspended dividend
payments are likely to allow banks to resume those payments soon. The EM financial sector index ended 2020 down more
than 8%, significantly underperforming the broader MSCI Emerging Markets Index, which was up more than 18%. We believe
valuations of EM financials remain attractive, trading at 1.10x price/book compared to their long-term average of 1.58x
price/book.
We also believe the Indian economy continues to be well positioned as we enter 2021. High-frequency indicators such as
power demand, manufacturing PMI, passenger vehicle sales and tax collections point to a strong rebound in growth. Indian
corporates have largely taken advantage of the environment to restructure, cut costs and raise capital for future growth. The
resulting operating and financial leverage should help boost consensus earnings and macroeconomic growth estimates.
Further, as discussed in our Q3 commentary, the policy response from the government and the Reserve Bank of India (RBI)
has bolstered investor confidence.
The Fund’s underweight in China contributed to the outperformance in the fourth quarter. We continue to have a significant
underweight in China purely as a fallout of bottom-up stock picking, not top-down country allocation. The recent clampdown by
the Chinese government on internet giant and Index heavyweight Alibaba (BABA) reminds us of the regulatory and macro
risks that exist in China. However, it does not change how we invest in China. We believe that our bottom-up investment
process should continue to lead to significant outperformance, as we have done so far - both in our portfolio and within the
sub-portfolio of China investments.
FOR INVESTMENT PROFESSIONAL USE ONLYUnlike other EM investors who might believe Alibaba is a high quality company, we have always viewed it as lower quality and
have intentionally avoided investing in the stock. Over the years, BABA founder, Jack Ma, has become increasingly influential
and BABA has demonstrated strong growth along with industry-leading margins – qualities that have attracted many non-
Chinese investors. Recently, BABA’s dominance has become more obvious. For example, BABA has reportedly forced
merchants to sign exclusivity agreements on its TMall e-commerce platform – an anti-competitive measure against peers such
as group-purchase rival Pinduoduo.
Experienced investors looking at BABA through a Chinese lens can understand the bigger picture as we see it - that BABA’s
unchallenged growth, market leadership, and lack of obvious deference to the government would one day draw discipline from
the Chinese Communist Party. There is ample precedence. For example, when China Telecom became too big, the
government restructured the company into separate businesses. When Anbang insurance group expanded too aggressively,
the Chinese government jailed its chairman and forced the company to unwind its acquisitions. When Tencent became
dominant in gaming, the government imposed an approval process for new game publication.
We think BABA’s profitable growth may face more restrictions and scrutiny could slowly erode its market dominance. To start,
China halted BABA-controlled Ant Financial’s IPO and imposed stricter capital requirements on Ant, as it was believed that
Jack Ma did not show enough public gratitude nor attribute enough of Ant’s success to the country. This was a not a slap-on-
the-wrist: BABA may have to cede some control of Ant Financial or be required to share customer data with the government.
BABA may also need to become less aggressive in protecting its e-commerce market share. Part of the valuation in BABA's
share price has an embedded expectation for company-wide profitable growth and Ant’s valuation; thus, BABA stock may be
impacted. Our investment framework describes this as BABA’s transition to lower quality, which would likely lead to multiple
compression and a lower valuation.
Frankly, we anticipated this day would come, and we found other investments in China that appear more attractive even
without considering the regulatory and macro risk. Thus, despite the recent upheaval in the Chinese internet sector, our China
investment process and China stock portfolio are unchanged. We remain significantly underweight China.
OUTLOOK & FUND POSITIONING
We see several factors that could contribute to strong EM equity markets in 2021 –
• Stronger consumer and business activity and confidence due to the COVID-19 vaccine rollout
• Manufacturing sector recovery from a low base
• A rise in global travel and tourism
• A US administration with a less hawkish attitude toward globalization
• Continued V-shaped recovery in China
• Accommodative monetary policy from the US Federal Reserve (Fed) and the European Central Bank (ECB)
In the United States, with the Democratic win of the Georgia Senate runoff elections, the Democrats have entered 2021 with
control of the Presidency, the Senate and the House of Representatives. This outcome should be bearish for the US dollar
and consequently, likely bullish for EM currencies. Under the new administration, the US will most likely experience increased
fiscal spending, a widening budget deficit, a partial repeal of the Trump tax cuts, as well as higher corporate and personal
income taxes. Increased fiscal spending should drive inflation higher and real rates lower as the Fed continues to maintain an
accommodative stance, thus pressuring the dollar. The Fed signaled last year that it will be on hold until 2023, and announced
a major policy shift to “average inflation targeting”. Thus, we believe the Fed will allow inflation to run above the 2% target
before hiking rates. Additionally, making prospects potentially worse for the dollar is the country’s large current account deficit,
which should expand with the growing budget deficit.
Globally, we believe that the world is going through a synchronized economic recovery driven by Chinese GDP growth, which
should reach the highest level in almost a decade in 2021. Stronger Chinese economic growth should support growth in other
EM economies through trade and capital channels. Furthermore, developed market central banks should continue to provide a
supportive liquidity backdrop. This increased liquidity was one of the key factors supporting a significant increase in EM hard-
currency sovereign debt issuance during 2020. Conversely, declining liquidity and/or a steepening of the US yield curve could
certainly pressure the debt dynamics of some EM countries, which could hurt their equity markets.
FOR INVESTMENT PROFESSIONAL USE ONLYIf growth in EM economies rebounds as we anticipate, inflation could play the spoilsport. EM countries are more vulnerable to
the recent rise in food and energy costs. Money supply growth was also very strong in EM last year due largely to quantitative
easing. However, we believe stronger EM currencies, as well as normalization of supply chains due to the economic recovery,
should help contain inflation pressure. Several of these emerging economies also have high real interest rates that should
afford their central banks room to maneuver.
Overall, EM equities currently look expensive on a price-to-earnings basis, trading at almost 15x compared to the 20-year
mean of almost 11x. However, when taking into account the prevailing low interest rates, we believe EM valuations look
attractive on a forward-earnings-yield ratio6 basis, which is currently at around 8.0, two standard deviations cheaper than its
long-term average of 5.0. Furthermore, EM equities are trading at an almost 30% discount to the S&P 500, on a 12-month
forward P/E basis.
In our view, the main risk to EM equities, and even global equities, in 2021, is the successful execution of the largest
vaccination drive in history, which is fraught with many complexities involving global logistics, temperature control, double
doses and affordability. Only five million people, in 22 countries, had been vaccinated by year-end, and while the challenges
are great, they are not insurmountable. New vaccines (e.g. by AstraZeneca) that are cheaper and easier to store are getting
regulatory approvals and some EM countries (e.g. India, China) are seeing early success with locally developed vaccines. As
we discussed in our last letter, we are long human ingenuity.
The last two months of 2020 saw a significant rally in EM value stocks with the MSCI EM Growth Index underperforming the
MSCI EM Value Index7 by 938 bps, after significantly outperforming over the last five years (annualized +683 bps, cumulative
+5,588 bps) and ten years (annualized +511 bps, cumulative +7,252 bps). Many market pundits have called the recent market
action the beginning of the “great rotation” from growth to value. We do not make such market calls. We stick to what we
believe we do well – bottom-up, fundamental, “private equity type” research on companies (not style boxes). We invest only in
high quality or transitioning quality companies, which exist in structural growth industries, where our research gives us
distinctive insights that translate to our estimate of their intrinsic value far exceeding their market value. In the last two months
of 2020, the Fund’s I/A(USD) share class delivered a return of 29.23%, outperforming the MSCI EM Growth Index by 1,647
bps and MSCI EM Value Index by 710 bps. If the pundits are correct and the “great rotation” leads to a selloff in any of our
stocks, we would likely be buyers, not sellers of these stocks. We welcome such opportunities of market mayhem when we
can increase our positions at lower prices.
We thank you for your trust and confidence in us.
6 Forward earnings yield ratio is defined as the reciprocal of the 12-month forward P/E divided by the US 10-year Treasury yield.
7 The MSCI EM Growth Index and MSCI EM Value Index returns are from Bloomberg.
FOR INVESTMENT PROFESSIONAL USE ONLYLoomis Sayles Global Emerging Markets
Equity Fund I/A (USD)
Fund Performance and Characteristics 31-Dec-2020
Trailing Returns – Net of Fees
1M 3M YTD 1Y 3Y ann. 5Y ann. 10Y Ann. Incep. Ann.
Fund, % 8.89 31.83 41.03 41.03 - - - 41.84
Index, % 7.35 19.70 18.31 18.31 - - - 26.10
Fund Characteristics
Inception Date 7-Oct-2019
Reference Index MSCI Emerging Markets Index NR USD
TER, % 1.00 %
Maximum Sales Charge, % 4.00 %
Redemption Charge / CDSC 0%/-
Minimum Initial Investment 100,000 USD
ISIN LU2045820094
Bloomberg Ticker LSGEIAU LX
NAV / Share 154.02 USD
Management Company Natixis Investment Managers S.A.
Investment Manager Loomis, Sayles & Company
Please read the prospectus and Key Investor Information carefully before investing. If the fund is registered in your jurisdiction,
these documents are also available free of charge from the Natixis Investment Managers offices (im.natixis.com) and the paying
agents/representatives listed below. Austria: Erste Bank der österreichischen Sparkassen AG, Am Graben 21, 1010 Vienna. France:
CACEIS Bank France, 1-3, Place Valhubert, 75013 Paris. Natixis Investment Managers Distribution, 43 avenue Pierre Mendès France 75648
Paris cedex 13. Germany: Rheinland-Pfalz Bank, Grose Bleiche 54-56, D-55098 Mainz. Italy: State Street Bank GmbH – Succursale Italia,
Via Ferrante Aporti, 10, 20125 Milano. Allfunds Bank S.A. Succursale di Milano, Via Santa Margherita 7, 20121 Milano. Société Générale
Securities Services S.p.A., Maciachini Center - MAC 2, Via Benigno Crespi, 19/A, 20159 Milano. Luxembourg: Natixis Investment Managers
S.A., 2, rue Jean Monnet, L-2180 Luxembourg. Switzerland: RBC Investor Services Bank S.A., Esch-sur-Alzette, Zurich Branch, Bleicherweg
7, CH-8027 Zurich.
For more information about potential charges such as charges relating to excessive trading or market-timing practices please refer to the
Fund’s prospectus and the KIID.
FOR INVESTMENT PROFESSIONAL USE ONLYLoomis Sayles Global Emerging Markets
Equity Fund
Fund Risks 31-Dec-2020
The Fund invests primarily in shares of global emerging market companies. Equity investments may experience
large price fluctuations. Emerging market investments may be subject to greater risks than more developed
markets. The Fund is subject to additional material risks including, but not limited, to: Stock Connect risk, Emerging
Markets risk, Portfolio Concentration risk, Derivatives/Counterparty risks, Smaller Capitalization risk.
All investing involves risk, including the risk of loss. The fund is subject to additional material risks, please
see the full prospectus for a comprehensive list of risks.
Stock Connect risk
The Fund may invest in China "A" shares via the Shanghai-Hong Kong Stock Connect and/or Shenzhen-Hong
Kong Stock Connect programs which are subject to additional clearing and settlement constraints, potential
regulatory changes as well as operational and counterparty risks.
Emerging Markets risk
Funds investing in emerging markets may be significantly affected by adverse political, economic or regulatory
developments. Investing in emerging markets may not provide the same degree of investor protection or information
to investors as would generally apply in major securities markets. In addition, exchanges in emerging markets may
be very fluctuating. Finally, funds may not be able to sell securities quickly and easily in emerging markets.
Portfolio Concentration risk
Funds investing in a limited number of securities may increase the fluctuation of such funds' investment
performance. If such securities perform poorly, the fund could incur greater losses than if it had invested in a larger
number of securities.
Derivatives/Counterparty risks
Funds may enter into listed and unlisted derivative contracts in order to have an exposure to underlying assets or
to protect their direct assets. Payments on these contracts vary with changes of the value of the underlying assets.
These contracts may cause the Funds to have a higher market exposure than they would have otherwise, which
may in some cases increase losses. Unlisted contracts are agreed with a specific counterparty. If the counterparty
goes into liquidation or fails or defaults on the contract, the Fund could suffer a loss. Because they are not listed,
these contracts can be difficult to price.
Smaller Capitalization risk
Funds investing in companies with small capitalizations may be particularly sensitive to wider price fluctuations,
certain market movements and less able to sell securities quickly and easily.
FOR INVESTMENT PROFESSIONAL USE ONLYAdditional Notes
This material has been provided for information purposes only to investment service providers or other Professional Clients or Qualified Investors and, when
required by local regulation, only at their written request. This material must not be used with Retail Investors. In the E.U. (outside of the UK and France):
Provided by Natixis Investment Managers S.A. or one of its branch offices listed below. Natixis Investment Managers S.A. is a Luxembourg management
company that is authorized by the Commission de Surveillance du Secteur Financier and is incorporated under Luxembourg laws and registered under n. B
115843. Registered office of Natixis Investment Managers S.A.: 2, rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. Italy: Natixis
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Clemente 1, 20122 Milan, Italy. Germany: Natixis Investment Managers S.A., Zweigniederlassung Deutschland (Registration number: HRB 88541). Registered
office: Im Trutz Frankfurt 55, Westend Carrée, 7. Floor, Frankfurt am Main 60322, Germany. Netherlands: Natixis Investment Managers, Nederlands
(Registration number 50774670). Registered office: Stadsplateau 7, 3521AZ Utrecht, the Netherlands. Sweden: Natixis Investment Managers, Nordics Filial
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