Q4 of 2022 was a volatile period for emerging markets, with some critical rotations and reversals. Continued selling culminated with the October bottom, coinciding with the dollar high; emerging markets swiftly rebounded in November, overlapping with the fall in the dollar, while December was relatively flat.

However, it is important to mention the underlying activity in some relevant EM markets.

As usual, we must start with China. We foresaw the change in Chinese policy following the Communist party congress, and it was logical to anticipate some relaxation of the harsh Covid rules in the country. We began to increase our allocation in China, and we made that gradual move by investing in some higher growth names and adding to our ‘re-opening’ plays. The fund was underweight in China for the whole year, which was a good call. However, the sudden change of heart among the top circles in China, and even their willingness to support the two worst hit sectors, internet and property, led to a short squeeze. We recognised and identified that change of heart; however, repositioning the portfolio did take a bit of time. Hence, China was a significant negative contributor for Q4.

While the second worst contributor for the quarter was South Korea – where we saw a typical reversal with some of our previous winners, investors should be attentive to the selloff that occurred in Brazil over December. The domestic companies in Brazil had an adverse reaction to the presidential elections and, in the process, damaged their market. Consequently, interest rates, already among the highest in the world, suddenly rose during the political turmoil. Brazil’s volatility should not be a surprise, but as with many other things, it is often about the degree, the magnitude and the speed. We decreased our country allocation and tried to stay in arguably more ‘defensive’ stocks, but that did not help much.

The attribution report shows that information technology and minor consumer discretionary were the two worst sectors for the quarter, as the correction in technology shares, particularly Taiwanese technology shares, created several performance detractors. On the other hand, stock selection in the consumer staples sector provided positive drivers to performance. For example, Varun Beverages, a purveyor of soft drinks and snacks in India, reported positive results during the quarter.

Being nimble, flexible and staying on top of the game is compulsory in our job. There are periods, shorter ones, that hit fund performance unproportionally.

Writing this analysis in the second week of January allows me to emphasise the good arguments in favour of EM Small Cap again. The EM Small Cap index finally broke out again; all the previous positive arguments have finally been recognised by the other global players and even the global macro picture looks optimistic suddenly. China continues with its rebound and we continue to decrease our Chinese underweight more significantly through investments in growth names and adding to our ‘re-opening’ plays. Conversely, Brazil continues with its political disruption, whilst it remains the country with most room to cut interest rates. That is why we prefer to play the relatively new theme of ‘friend-shoring’ and ‘near-shoring’ – Mexico being the best example. India is an interesting problem, as it was a big beneficiary of Chinese underperformance in 2022.

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.