Q2 of 2023 was sluggish for emerging markets and the MSCI Emerging Markets Index ended the quarter flattish, lagging developed market indexes. In this tough environment, we managed to outperform due to successful stock selection within a combination of countries and sectors.

China was sluggish due to the lack of material stimulus, weakness of the property market, and slower consumption recovery. The ‘anaemic’ Chinese recovery is illustrated by the weak performance of some of our bottom performers; Shangri-La Asia (high-end hotel operator), Melco International (Macau casino operator), BOE Varitronix (Chinese manufacturer of displays for electric vehicles) and Proya Cosmetics (leading domestic cosmetics brand). The weak commodity sector was the second example of the Chinese weakness, but we benefited from our underweight position.

On the other hand, several countries and sectors within the emerging markets showed positive performance. The Taiwanese technology sector had the biggest positive contribution to the strategy in Q2. The team reduced its position in the consumer technology sector at the beginning of the quarter when it became clear that the expected recovery after two quarters of inventory correction would be shallower and slower than initially expected. At the same time, we were gradually rotating into AI beneficiaries, which accelerated even further after Nvidia’s results. Asian tech (not just in Taiwan) is well positioned for this new trend, with a large part of the AI supply chain located in Asia. Multiple companies are already seeing significant revenue contributions from AI and significant dollar content increase in AI servers compared to traditional servers. Alchip is benefiting from the trend of ‘hyper scalers’ (like Amazon, Meta and others) designing their own chips to replace expensive GPUs from Nvidia with customized solutions. Asia Vital is benefiting from an increase in demand for AI-related heat dissipating solutions.

Brazil was the standout country performer within the MSCI EM index in Q2. The country benefited from the well-anticipated disinflation trends, and the real interest rate in Brazil is approaching 10%. Furthermore, Brazil has also seen improvement in some other key macroeconomic indicators, such as GDP growth, and we could argue that the political environment under Lula is turning out to be more stable than expected by some market participants. We identified stocks that benefited from those well-anticipated macro developments in Brazil; a good example of our Recovery Growth philosophy was LocaWeb Servicos. A company involved in internet, hosting, and software development for SMEs, LocaWeb Servicos was sold and shorted during the big correction, which preceded the huge and fast rebound in Brazil. Such patterns are not unusual in the Brazilian stock market, as local and aggressive investment teams often dominate it. However, we knew the company well, talked to the management, met them, worked on our fundamental analysis, and patiently traded the volatility around the positioning in the stock, depending on the risk factors.

Another major emerging market which showed faster-than-expected disinflation trends was India. The Indian central bank refrained from hiking the interest rate further (surprising the market in April) and there have been growing expectations of interest rate cuts. Strong asset quality helped our Indian non-banking financial holding.

Furthermore, the strategy benefited from its overweight position in Greece and Poland. The recent Greek elections, where the pro-market ‘New Democracy’ party delivered a clear victory, have opened the potential for a sovereign upgrade to ‘investment grade’ for Greece, which would, in turn, decrease funding costs for Greek banks.

In summary, the EM index has been capped by a sluggish recovery pace in China and continuing uncertainty about the Federal Reserve interest rate path. However, many EM countries are doing well in macroeconomic terms and there are positive sector developments that EMs can benefit from going forward.

Sources for all data: JOHCM/Bloomberg (unless otherwise stated).

The performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's current performance may be lower or higher than the performance data quoted. Investors may obtain performance information current to the most recent month-end, within 7 business days at www.johcm.com or by calling 866-260-9549 or 312-557-5913.

Returns shown, unless otherwise indicated, are total returns, with dividends and income reinvested. Returns for periods of less than one year are not annualized. Fee waivers are in effect; if they had not been in effect performance would have been lower.

The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization index that is designed to measure the performance of small capitalization equities in the emerging markets. The MSCI Emerging Markets Small Cap Index includes small cap representation across 23 Emerging Markets countries. Investing in an index is not possible.Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

Historical performance of the Emerging Markets Opportunities Fund for Class II Shares prior to its inception is based on the performance of Class I Shares, the share class most similar to Class II. The performance of Class II Shares has been adjusted to reflect differences in expenses.

*Expense ratios as stated in the latest prospectus. JOHCM (USA) Inc. has contractually agreed to waive fees and reimburse expenses so that the Net Total Operating Expenses do not exceed the stated amounts until January 28, 2024.

Fund holdings, sector allocation, regional allocation and top 10 countries are subject to change without notification.

The performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's current performance may be lower or higher than the performance data quoted. Investors may obtain performance information current to the most recent month-end, within 7 business days at www.johcm.com or by calling 866-260-9549 or 312-557-5913.

Returns shown, unless otherwise indicated, are total returns, with dividends and income reinvested. Returns for periods of less than one year are not annualized. Fee waivers are in effect; if they had not been in effect performance would have been lower.

The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization index that is designed to measure the performance of small capitalization equities in the emerging markets. The MSCI Emerging Markets Small Cap Index includes small cap representation across 23 Emerging Markets countries. Investing in an index is not possible.Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

Historical performance of the Emerging Markets Opportunities Fund for Class II Shares prior to its inception is based on the performance of Class I Shares, the share class most similar to Class II. The performance of Class II Shares has been adjusted to reflect differences in expenses.

*Expense ratios as stated in the latest prospectus. JOHCM (USA) Inc. has contractually agreed to waive fees and reimburse expenses so that the Net Total Operating Expenses do not exceed the stated amounts until January 28, 2024.