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

Investor Class | Institutional Class
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Emerging-Market Stocks Played Defense During a Volatile Quarter
by Ajay Krishnan, CFA, Roger Edgley, CFA, Scott Thomas, CFA and Matthew Dreith, CFA

“Economic warning signs sent global stock markets reeling during the fourth quarter. Having corrected earlier in the year, emerging-market equities generally held up better than their developed-market counterparts.”

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For the period ended December 31, 2018, the total return of the Wasatch Emerging Markets Select Fund for 1-year, 5-year and since inception periods was -11.50%, -0.07%, and -0.32% respectively, the return for the MSCI Emerging Markets Index was -14.58%, 1.65%, and 1.15% 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.


Economic warning signs sent global stock markets reeling during the fourth quarter. Having corrected earlier in the year, emerging-market equities generally held up better than their developed-market counterparts. The benchmark MSCI Emerging Markets Index fell -7.47% for the quarter. The Wasatch Emerging Markets Select Fund—Investor Class declined less than its benchmark, posting a loss of -6.06%.

Data released in mid-October showed China’s economic growth slowing to 6.5% during the third quarter. The weaker-than-expected pace was China’s slowest since the first quarter of 2009. Industrial output and retail sales for November also came in well below expectations, suggesting China’s trade war with the U.S. was beginning to impact the economy. The Beijing government vowed to support future growth by cutting taxes and keeping liquidity ample.

With global demand increasingly reliant on China, export-dependent economies such as Korea and Taiwan faced growing scrutiny from investors. Relative to the benchmark, Korea and Taiwan were sources of outperformance for the Fund, as our Korean and Taiwanese holdings declined less than the corresponding positions in the Index. China was a source of weakness against the benchmark, as our Chinese stocks underperformed.

Worries that a slowdown in global economic growth would crimp demand for fuel sent oil prices sharply lower. Rising supply from the U.S., Saudi Arabia and Russia also weighed on prices as Brent crude tumbled nearly -38% from its four-year high on October 3rd through the end of the quarter.

Cheaper oil was a welcome development in India, which imports about 80% of the oil it uses. The slide in crude prices eased inflationary pressures, which allowed India’s central bank to hold its policy interest rate unchanged. With less Indian currency being sold to purchase oil, the rupee appreciated 4.2% against the U.S. dollar during the quarter, boosting investment returns of assets denominated in rupees. India was the Fund’s largest source of strength against the benchmark, as our Indian stocks outpaced the Indian positions in the Index and our overweight position in India was a tailwind to performance.

The top-performing country in the benchmark was Brazil. Brazilian stocks soared to record highs after President-elect Jair Bolsonaro pledged to sell dozens of state-owned companies and selected a well-respected economist as his chief economic advisor. The upturn in investor sentiment failed to lift the Fund’s Brazilian holdings, which tend to be more stable and less sensitive to market swings due to economic news. As a result, Brazil was the Fund’s greatest source of weakness relative to the benchmark.

Details of the Quarter

India accounted for most of the Fund’s contributors to performance for the quarter—including the top contributor, Bajaj Finance Ltd. Shares of the non-bank financial company rebounded on an easing of the interest-rate pressures that had threatened to increase its funding costs. Longer term, we think the backing of Bajaj Group, the parent company, will provide Bajaj Finance with an advantage over weaker competitors that may find it more difficult to obtain funding.

PT Bank Central Asia Tbk was the second-best contributor. Indonesia’s largest bank by market value, PT Bank offers both conventional and Shariah-compliant banking services. The company saw its stock price begin moving higher in late October after reporting a 9.9% increase in net profit for the nine months ended September. The stock received an additional boost as improved investor confidence in the Indonesian rupiah sent the currency 3.8% higher against the U.S. dollar during the fourth quarter.

The third-largest contributor to performance was Vitasoy International Holdings Ltd. A Chinese company, Vitsasoy offers soy milk, tofu, rice milk, tea, juices and related food-and-beverage products in over 40 countries. Earnings per share rose 30% year-over-year in the company’s most-recent reporting period on 22% revenue growth. Management cited improved manufacturing efficiency and favorable trends in commodity prices, particularly sugar and milk powder.

The greatest detractor from Fund performance for the quarter was Ctrip.com International Ltd. ADR. Depositary receipts of the Chinese online travel agent declined amid fears that pressure from competitors may force promotional spending higher at Ctrip and impact earnings. Though we think there is merit to these concerns, we consider them short-term in nature. From a long-term perspective, we think there is little to suggest the company’s business model is broken.

Other significant detractors included Grupo Aeroportuario del Sureste S.A.B. de C.V. (known as ASUR) and Grupo Aeroportuario del Pacifico S.A.B. de C.V. (known as GAP). Both companies operate airports under contracts with the Mexican government. The stocks of these and other holders of government concessions in Mexico have come under pressure after a decision by newly elected president Andrés Manuel López Obrador to scrap a $13 billion airport under construction on the outskirts of Mexico City. The move spooked investors and weighed on the peso, which slipped -4.3% against the dollar during the fourth quarter.

We think these worries are overblown and have found no evidence that Mr. Obrador plans to disrupt the existing concession system in Mexico. In what was widely viewed as a positive development, late in the quarter a majority of bondholders accepted Mexico’s offer to buy back $1.8 billion in debt used to fund the airport’s construction. The peso rose on the news, and shares of ASUR and GAP trimmed earlier losses. (Current and future holdings are subject to risk.)


While the collapse in oil prices has eased inflation concerns and brought down interest rates in India, funding remains a key factor for Indian lenders. We believe well-situated firms with ready access to funding are likely to enjoy significant competitive advantages going forward. With investors focused on (and perhaps distracted by) the 2019 Indian elections, we continue to seek out additional opportunities in Indian financials. We recently returned from a research trip to India and anticipate traveling there again as early as February.

China is another country high on our list of priorities. We plan to visit China in January and to devote substantial resources to identifying Chinese companies with attractive potential for investment. In general, we believe that large, dynamic countries such as India and China offer greater opportunity than smaller countries, whose economies tend to be more cyclical and commodity-driven. Although near-term risks in China remain elevated, we think the Chinese government has the means and determination necessary to manage the current slowdown.

Though uncomfortable, recent volatility in equity prices serves the larger and necessary purpose of wringing excesses in sentiment from global financial markets. In emerging markets especially, we believe valuations are nearing levels that bode quite well for future returns. Over time, we believe our active focus on high-quality companies has the potential to generate favorable investment results.

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.

Earnings per share or EPS is the portion of a company’s profit allocated to each outstanding share of common stock. EPS growth rates help investors identify companies that are increasing or decreasing in profitability.

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.

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