Wasatch Emerging Markets Select Fund® (WAESX)  Invest in this Fund 

Investor Class | Institutional Class
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China’s Policy Makers Looked to Stimulate the Economy as Trade Concerns Intensified
by Ajay Krishnan, CFA, Roger Edgley, CFA, Scott Thomas, CFA and Matthew Dreith, CFA

“The Chinese government announced a series of stimulus measures—which included special infrastructure bonds and a tax cut—designed to increase domestic demand and ward off an economic slowdown. A key importer of raw materials, components and finished goods from other countries, China functions as a locomotive of growth for other emerging markets.”

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For the period ended September 30, 2018, the total return of the Wasatch Emerging Markets Select Fund for 1-year, 5-year and since inception periods was -0.57%, 1.78%, and 0.75% respectively, the return for the MSCI Emerging Markets Index was -0.81%, 3.61%, and 2.57% respectively. Expense ratio: Gross 1.90% / Net 1.51%.


Data shows past performance, which is not indicative of future performance. Current performance may be lower or higher than the data quoted. To obtain the most recent month-end performance data available, please click on the “Performance” tab of the individual fund under the “Our Funds” section. The Advisor may absorb certain Fund expenses, without which total return would have been lower. Investment returns and principal value will fluctuate and shares, when redeemed, may be worth more or less than their original cost.

Wasatch Funds will deduct a 2.00% redemption proceeds fee on Fund shares held 60 days or less. Performance data does not reflect the deduction of fees, including sales charges, or the taxes you would pay on fund distributions or the redemption of fund shares. Fees and taxes, if reflected, would reduce the performance quoted. Wasatch does not charge any sales fees. For more complete information including charges, risks and expenses, read the prospectus carefully.

Wasatch Funds are subject to risks, including loss of principal.


Concerns about global trade continued to buffet less-developed economies in what was a volatile third quarter for emerging-market stocks. The benchmark MSCI Emerging Markets Index finished the third quarter down -1.09%. The Wasatch Emerging Markets Select Fund—Investor Class underperformed the benchmark, posting a loss of -6.39%.

China’s $12 trillion economy faced fresh challenges as both sides announced new tariffs in the country’s trade dispute with the United States. Manufacturing surveys from China remained weak, suggesting U.S. tariffs may be beginning to affect the Chinese economy. In July, the Chinese government announced a series of stimulus measures—which included special infrastructure bonds and a tax cut—designed to increase domestic demand and ward off an economic slowdown. A key importer of raw materials, components and finished goods from other countries, China functions as a locomotive of growth for other emerging markets.

The prospect of shrinking exports to China confronted emerging markets at a time when contagion fears following routs in the currencies of Argentina and Turkey placed countries with current-account deficits under mounting scrutiny from investors. Although Argentina and Turkey comprise only a small part of the emerging-market equity universe, bouts of weakness in the currencies of Brazil, South Africa, India and other countries appeared at times to spook international investors.

Taiwan and India were the Fund’s greatest sources of underperformance relative to the benchmark. In Taiwan, the poor performance of our stocks was attributable mainly to company-specific factors. The Fund’s performance in India was impacted late in the quarter when our Indian financial stocks were caught up in a contagion resulting from difficulties experienced by a few Indian financial firms, which caused investors to become cautious on the country’s entire financials sector. Fears of a hard landing for the Chinese economy also appeared to weigh on the stocks of a few of our companies with exposure to Chinese demand.

Bright spots for the Fund included Mexico and Brazil. Our Mexican and Brazilian stocks helped the Fund’s return and outgained corresponding positions in the Index. While Mexico’s equity market rose and the peso appreciated against other currencies during the third quarter, sentiment toward Brazil remained mixed. Investors worried the country’s vote for president in October may usher in an extreme government.

Details of the Quarter

The strongest contributor to Fund performance for the quarter was Grupo Aeroportuario del Sureste S.A.B. de C.V. Based in Mexico and known as ASUR, the company holds concessions to operate airports in Cancún and eight other cities in the southeast of Mexico. ASUR also operates the Luis Munoz Marin airport in Puerto Rico and an airport group in Colombia. The company’s stock price got a boost in July after quarterly earnings and revenues came in ahead of Wall Street expectations. In August, Mexican stocks rallied and the peso firmed on news the U.S. and Mexico had reached a deal to replace the North American Free Trade Agreement (NAFTA).

Other top contributors included Page Industries Ltd. and Raia Drogasil S.A. Based in India, Page manufactures and sells Jockey-branded undergarments in India, Sri Lanka, Bangladesh, Nepal and the United Arab Emirates. Page is also the exclusive licensee for the manufacture, marketing and distribution of the Speedo brand in India. Shares of Page rose sharply in August after the company reported a 46% year-over-year increase in net profit in its most-recent quarter on 17% revenue growth. The inclusion of Page in the MSCI India Domestic Index as of August 31st also helped lift the stock.

Raia Drogasil operates the leading drug-store chain in Brazil. As Brazil’s stock market languished earlier this year, we added to the Fund’s position in Raia Drogasil based on its strong balance sheet, attractive growth prospects and other desirable characteristics. Our patience and discipline were rewarded as the stock rebounded nicely during the third quarter. The company’s shares performed especially well as an upturn in investor sentiment lifted Brazilian stocks during July.

One of the greatest detractors from Fund performance for the quarter was Taiwanese IT company Silergy Corp., a manufacturer of high-performance mixed-signal and analog integrated circuits. Silergy saw its stock price decline as a global shortage of passive electronic components impacted production of its products. We believe the shortage will be temporary and expect the company to ramp up production when components become more-readily available. We used recent weakness in the stock as an opportunity to add to the Fund’s position at prices we consider attractive.

An example of the contagion affecting our Indian financial holdings was non-bank financial company Bajaj Finance Ltd., which went from being the Fund’s top contributor for the second quarter to one of the largest detractors in the third quarter. Despite this headwind to the stock, Bajaj Finance has been experiencing secular demand growth driven by increased financialization, favorable demographics and a cultural shift away from extended-family living arrangements. Consolidated profit after tax surged 81% year-over-year in the company’s most-recent quarter on a 39% increase in revenue from operations. We believe Bajaj Finance is creating significant headroom for future growth through its innovative use of technology to expand the markets it serves, and we remain comfortable with our position.

Another weak stock in the Fund was MakeMyTrip Ltd. (MMYT). The company operates the leading online travel agency in India. MakeMyTrip’s stock price declined in August after management reported mixed quarterly results. The stock fell further on concerns of increased competitive intensity in the airline-ticketing and hotel-booking segments. We think these fears are overdone. In our view, MakeMyTrip’s strong market position and the financial backing of South Africa-based Naspers Ltd. make the company an unlikely target for competitors seeking to gain market share.

51job, Inc. Sponsored ADR was also a large detractor. The company provides online recruitment and other human-resources services in China. Although 51job reported strong quarterly revenues and earnings, the company issued forward guidance that disappointed investors. Also weighing on the depositary receipts of 51job was an unexpected narrowing of margins, which we think may be related to the front-loading of sales commissions. After recently meeting with 51job’s management team in China we remain positive on the company’s long-term growth prospects. (Current and future holdings are subject to risk.)


Recent data indicate China’s economic momentum has slowed as the government curbs risky lending and as tariffs on Chinese exports to the U.S. begin to bite. As policy makers now shift into a stimulative mode, their ability to provide the appropriate economic medicine will be a key determinant of China’s near-term economic health. Although the stakes are high and the risks are significant, similar periods in the past suggest a reasonable likelihood of success. The Chinese government has an abundance of policy levers at its disposal and has demonstrated an uncanny ability to pull just the right ones at just the right time.

With recent declines in Chinese stocks having brought valuations to more-attractive levels, our research has identified approximately 200 Chinese companies that we think merit further evaluation. Toward that end, analysts from the Wasatch international team recently returned from a trip to China that included visits to 65 companies. This was the first of a series of trips designed to cover our list of candidates for investment in China. The targeted securities span China’s A-share market as well as the H-shares.

Notwithstanding continued uncertainty surrounding tariffs and global trade, the investment environment in emerging markets remains generally favorable in our view. We’re pleased that, for the most part, the companies we own have delivered strong earnings growth despite the recent underperformance of their stocks. As fundamental, bottom-up investors, we believe—over the longer term—earnings-driven market environments will provide beneficial conditions for our investment approach to outperform.

Thank you for the opportunity to manage your assets.


Ajay Krishnan, Roger Edgley, Scott Thomas and Matthew Dreith


The MSCI Emerging Markets Index is a free float-adjusted market capitalization index designed to measure the equity market performance of emerging markets. You cannot invest in this or any index.

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indexes. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties or originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)

CFA® is a trademark owned by CFA Institute.

The Wasatch Emerging Markets Select Fund’s investment objective is long-term growth of capital.

As of September 30, 2018, the Wasatch Emerging Markets Select Fund was not invested in Naspers Ltd.

China A-shares, along with B-shares, are sold on mainland China’s two stock exchanges, which are in Shanghai and Shenzhen. The key difference between A-shares and B-shares is that A-shares are denominated in mainland China’s currency, the renminbi, and B-shares are denominated in foreign currency (U.S. dollars in Shanghai and Hong Kong dollars in Shenzhen).

Earnings growth is a measure of growth in a company’s net income over a specific period, often one year.

H-shares refer to the shares of companies incorporated in mainland China that are traded on the Hong Kong Stock Exchange. Many companies float their shares simultaneously on the Hong Kong market and one of the two mainland Chinese stock exchanges in Shanghai or Shenzhen. Such companies are known as A+H companies.

The MSCI India Domestic Index is designed to measure the performance of the large- and mid-cap segments of the domestic Indian market.

The North American Free Trade Agreement (NAFTA) is a treaty entered into by the United States, Canada and Mexico. In accordance with the terms of the agreement, the three nations phased out numerous tariffs between January 1, 1994 and January 1, 2008. NAFTA’s purpose is to encourage economic activity between the United States, Canada and Mexico.

The Shanghai Stock Exchange is the largest stock exchange in mainland China. It is a non-profit organization run by the China Securities Regulatory Commission (CSRC).

The Shenzhen Stock Exchange, based in Shenzhen, Guangdong, is one of China’s three stock exchanges. The other two are the Shanghai Stock Exchange and the Hong Kong Stock Exchange.

Valuation is the process of determining the current worth of an asset or company.

The MSCI Emerging Markets and Small-Mid Cap Indexes are free float-adjusted market capitalization indexes that are designed to measure equity market performance in the global emerging markets.  

You cannot invest directly in indexes.

View the Emerging Markets Select Fund’s most current Top 10 Holdings

Portfolio holdings are subject to change at any time. References to specific securities should not be construed as recommendations by the Funds or their Advisor.

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