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

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Trade Disruptions Have Accelerated the Divergence of Emerging Markets
by Ajay Krishnan, CFA, Roger Edgley, CFA, Scott Thomas, CFA and Matthew Dreith, CFA

“The trade dispute between the U.S. and China has hastened the outflow of manufacturing from China to countries with lower costs of production. As this process has evolved and affected various countries differently, we believe the term “emerging markets” has become less relevant—in the sense that it does not describe a homogeneous group of countries.”

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For the period ended June 30, 2019, the total return of the Wasatch Emerging Markets Select Fund for 1-year, 5-year and since inception periods was 2.52%, 2.14%, and 2.07% respectively, the return for the MSCI Emerging Markets Index was 1.21%, 2.49%, and 2.63% respectively. Expense ratio: Gross 1.76% / 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.


The Wasatch Emerging Markets Select Fund—Investor Class returned 2.98% in what was an up-and-down second quarter for emerging-market equities. The Fund outperformed its benchmark, the MSCI Emerging Markets Index, which rose 0.61%. A shift by the world’s major central banks toward more-accommodative monetary policy boosted risk sentiment, pushing stock markets moderately higher in most developing nations.

Brazil was the largest source of outperformance relative to the benchmark. The widely followed Ibovespa index of Brazilian stocks soared to record highs after the U.S. Federal Reserve (Fed) indicated lower interest rates may be on the way. Investors viewed the Fed’s dovish signals as giving Brazil’s central bank scope to proceed with interest-rate cuts of its own. Optimism for passage of President Jair Bolsonaro’s flagship pension overhaul also underpinned support for Brazilian equities. The Fund’s Brazilian stocks outgained the Brazilian positions in the benchmark MSCI Emerging Markets Index, and our overweight position in Brazil was a tailwind to performance.

Major stock averages in India also hit record highs following Prime Minister Narendra Modi’s resounding election to a second five-year term. With India’s annual rate of gross domestic product (GDP) growth having slowed from 6.6% to 5.8% during the first three months of the year, investors now hope Mr. Modi will enact additional policies to stimulate the country’s economy. Our Indian stocks outpaced their counterparts in the Index, providing the Fund with another substantial source of strength against the benchmark.

China was one of the worst-performing countries in the Index. Manufacturing activity in China continued to slow, suggesting China’s trade conflict with the U.S. has begun to affect its domestic economy. Although the Fund’s holdings in China declined somewhat more than the Chinese stocks in the Index, our underweight position in China helped performance relative to the benchmark.

Korea was the Fund’s greatest source of weakness against the benchmark. Considered a bellwether for global trade and technology, Korea’s economy reflected soft demand from China and other trading partners. Gross domestic product expanded just 1.8% during the first quarter of 2019 versus the same quarter a year ago—well short of the 2.4% growth expected by economists. Exports, which account for about half of Korean GDP, fell -2.6% sequentially from the previous quarter. Against the uncertain backdrop, the Fund’s Korean stocks declined more than the Korean component of the Index.

Details of the Quarter

The strongest contributor to Fund performance for the quarter was Bajaj Finance Ltd. An Indian non-bank financial company, Bajaj Finance is the lending arm of the Bajaj Group—a well-regarded industrial house founded in 1926. The company is experiencing secular demand growth driven by increased financialization, favorable demographics and a cultural shift away from extended-family living arrangements. Consolidated profit after tax at Bajaj Finance jumped 57% in its most-recent quarter on a 52% increase in revenue from operations versus the year-ago quarter. We believe the company is creating significant headroom for future growth through its innovative use of technology to expand the markets it serves.

MercadoLibre, Inc. (MELI) was the second-largest contributor. The leading provider of e-commerce services in Latin America, MercadoLibre is considered a Brazilian holding for portfolio-management purposes. The company’s stock price rose sharply in May after MercadoLibre reported better-than-expected earnings and its best revenue growth in eight quarters. Management cited online-to-offline progress in the company’s payments business, resiliency in its marketplace business and credited MercadoLibre’s shipping efforts with helping to expand the size of its managed network.

The third-largest contributor to performance was Silergy Corp. A Taiwanese company, Silergy manufactures high-performance mixed-signal and analog integrated circuits. The company’s shares languished for much of the past year, as sluggish demand caused a buildup of inventory in semiconductor supply channels. The stock rose sharply in June, however, after Silergy announced that its consolidated revenues in local currency had risen 8.59% in May 2019 compared to May 2018.

The greatest detractor from Fund performance for the quarter was Medytox, Inc. Based in Korea, the company manufactures neurotoxins for cosmetic applications. Shares of Medytox declined on news that slower-than-expected approvals are likely to delay the launch of its products in the lucrative Chinese market. Rumors that approval from the China Food and Drug Administration would not be forthcoming further depressed the stock. We believe these rumors are unfounded and continue to own Medytox in the Fund. In our view, regulatory approval in China would open a potentially large and profitable market that could drive the company’s growth for years to come.

Ctrip.com International Ltd. ADR was the second-largest detractor. Operating in the consumer-discretionary sector, Ctrip is Asia’s largest online travel agency and the second-largest in the world. In late May, the company reported a 50% increase in quarterly income from operations compared to the year-ago quarter as net revenue rose 21%. Despite moving sharply higher after the announcement, Ctrip’s depositary receipts finished lower on the quarter amid concerns that China’s economic slowdown may impact discretionary consumer spending.

The third-largest detractor from performance was ASPEED Technology, Inc. A fabless designer of integrated circuits, the company specializes in server management, audio-visual extensions, desktop virtualization and security enhancement. We trimmed the Fund’s position in ASPEED on concerns about increased competition in the global market for server controllers. However, we expect an upturn in the server-replacement cycle to reduce competitive intensity later this year. ASPEED’s newly developed spherical-image processor for 360-degree cameras offers additional upside that we believe is not fully priced into the stock. (Current and future holdings are subject to risk.)


The trade dispute between the U.S. and China has hastened the outflow of manufacturing from China to countries with lower costs of production. As this process has evolved and affected various countries differently, we believe the term “emerging markets” has become less relevant—in the sense that it does not describe a homogeneous group of countries.

India, for example, appears to be well-positioned despite its recent slowdown. Exports have been one of the bright spots in India’s economy, increasing 3.9% in May from a year ago. Meanwhile, Prime Minister Narendra Modi’s re-election with a stronger mandate has lifted expectations for fiscal measures designed to increase growth. India’s central bank recently cut interest rates for the third time this year and has moved to an accommodative stance.

In China, factory activity slowed more than expected in June according to two separate gauges released on the last day of the quarter. A private survey showed manufacturing contracting unexpectedly, falling to its lowest level since January. China’s official Purchasing Manager’s Index also came in weaker than expected. Even so, with key areas of China’s economy driven largely by government stimulus, near-term fluctuations are difficult to predict. From a longer-term standpoint, our outlook on China remains positive.

Mexico has shown some encouraging signs. Having avoided tariffs threatened by the Trump administration, the country now stands to benefit from any further deterioration in the trade relationship between the U.S. and China. Valuations in Mexico are attractive compared to other emerging markets, and the political situation seems to be going better than had been feared. On the negative side, issues such as falling oil production and massive debt at state-owned oil company Petróleos Mexicanos (Pemex) remain. However, the structural outlook in Mexico appears to have stabilized, at least temporarily.

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.

The Brazilian IBOV Index is the Ibovespa Brasil Sao Paulo Stock Exchange Index. It is a gross total return index weighted by traded volume and is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.

China Manufacturing Purchasing Managers Index (PMI) provides an early indication each month of economic activities in the Chinese manufacturing sector. It is compiled by China Federation of Logistics & Purchasing (CFLP) and China Logistics Information Centre (CLIC), based on data collected by the National Bureau of Statistics (NBS). Li & Fung Research Centre is responsible for drafting and disseminating the English PMI report. Every month questionnaires are sent to over 700 manufacturing enterprises all over China. The data presented here is compiled from the enterprises’ responses about their purchasing activities and supply situations. The PMI should be compared to other economic data sources when used in decision-making. 

Gross domestic product (GDP) is a basic measure of a country’s economic performance and is the market value of all final goods and services made within the borders of a country in a year.

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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