Base Case, Upside and Downside
AMG Trilogy Emerging Markets Equity Fund
Author: Ticker Magazine
Last Update: Nov 14, 12:44 PM EST
|A broader global perspective and a highly experienced team are among the key differentiators at the AMG Trilogy Emerging Markets Equity fund. Portfolio manager Pablo Salas navigates the seas of emerging markets relying on a bottom-up approach, fundamental research, quant screens, and macro trend analysis. With risk management embedded in the process of security selection, the fund aims to invest in sustainable growth companies at a reasonable price.
“We quantify the potential downside risk at the company level and we come up with a pessimistic case scenario and price target. So, when we select the stocks, we don’t just look for better upside potential, but we evaluate the potential upside return relative to the downside risk.”
We are benchmark agnostic and we have a lot of flexibility in terms of sector and country exposures. For countries or sectors that represent more than 10% of the benchmark, we can have twice the exposure of the benchmark. If consumer discretionary has 11% weight in the benchmark, for example, we can have exposure of 22% to that sector.
For smaller sectors or countries, our risk control limits the exposure to 20% in absolute terms. For example, Mexico has weight of 3% or 4% in the benchmark. Even if we find plenty of interesting ideas in Mexico, our exposure cannot be more than 20% of the portfolio.
That strategy has given us the flexibility to work in areas that we find attractive. We also do not have any required minimum exposures by sector or country. In the case of China in 2007, when many stocks were trading at high multiples and we weren’t finding many stocks with attractive upside/downside potential, our strategy would have allowed us to have zero weight.
At the individual security level, our risk guideline is 5% maximum position size, except for companies that constitute more than 5% of the benchmark. Right now we think Samsung Electronics is quite attractive in terms of the fundamental outlook for the business, combined with compelling valuation. Currently this position is slightly higher than 5% of the portfolio, but still below the risk controls limit for exposure.
Historically, we have held between 70 and 100 stocks. Over the years, the portfolio has been well-diversified, but it can be overweight in the areas with more interesting ideas within the guidelines that I mentioned.
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