Templeton Emerging Markets Investment Trust plc (TEM) Earnings Call Transcript & Summary

Good morning. I'm very pleased to welcome you all here today for the first TEMIT Investor Morning and Annual General Meeting, a new initiative we're trying this year. We're very keen to encourage more participation in the general meeting, and I'm pleased to say that the number is growing all the time, but we already have more than 4x as many shareholders here as we did last year, which I think is a great result. We've also got air conditioning, which is very welcome. The company secretary has advised me that a quorum of members is present. And as it's now 11:00 a.m., I declare that this meeting is open. We're going to leave the doors open because there are, well, some people still clearing registration, and they may be joining us as the meeting progresses. On behalf of the Board, I would like to thank you all for attending today. For the first time, we are live streaming the event and those online can watch, listen and ask questions. If you have suggestions as to how we can improve this meeting to make it even more appealing next year, please, can you either get in touch with me or with the company secretary. The details of where to find us can be found on Page 12 of the annual report. I'd first like to introduce the directors who are present today. We have Sarika Patel, David Graham, Magdalene Miller, Abigail Rotheroe and Charlie Ricketts. David Graham will be retiring following the conclusion of this meeting, and I would like to thank him for so many years of support and also his incisive insights and questioning, which has been to the benefit of all shareholders. We also welcome Chetan Sehgal, who is joining us on video from Singapore; and Andrew Ness, our managers, and we also welcome our guest speaker, Jeff Prestridge, who was money editor at large at the Daily Mail and Mail on Sunday. I'm a huge fan of Jeff's work, not only his writing, but also as a relentless promoter of the democratization of investment in the United Kingdom, increasing financial literacy to enable his readers to find lower risk, higher reward, long-term investments that will make a material difference to their wealth. Turning to this year. In the financial year under view, I'm pleased to report that the performance of the TEMIT portfolio has been strong. The net asset value total return over 12 months to 31st March '26, was up 41.3%, and the share price total return was up 48.6%. We measure ourselves against the MSCI Emerging Markets Index, which we believe is a guide as to what investors should expect our returns and risk profile to have been. This only returned 26.8%, and this is unusually good performance and outperformance. It's a little surprising to see such performance given the year has not been without its geopolitical challenges. On the second day of the financial year, President Trump's Liberation Day tariffs were introduced, and the portfolio did not escape the subsequent volatility. Both the NAV of the company and its share price initially fell sharply but subsequently increased substantially over the summer, leading us to a strong overall performance for the first half. And then again, at the end of our financial year, just as we thought we were out of the woods, the U.S. and Israeli military attacks on Iran precipitated a sell-off in markets, with Asia particularly dependent on oil from the Middle East. As a result, over the month of March, our NAV declined, tempering returns but still leaving us well ahead for this year. Despite this strong resilient performance, please do not judge us on the basis of 1 year's performance and don't expect this level of outperformance consistently. This is an actively managed fund, and there are always periods where we will perform less well than the benchmark due to changes of opinion and fashion. Investors instead should judge the company on the basis of its long-term performance. And we're very proud of that track record. NAV total returns are 220.3% over 10 years and 6,438% since inception 36 years ago. The manager's consistency of delivering these returns was recognized in May 2025, when Chetan and Andrew were awarded Citywire's highest AAA rating. I think our managers deserve our congratulations and thanks for what they have achieved. As a Board, we believe in emerging markets. And while we remain alert to the geopolitical and macroeconomic uncertainties that lie ahead, the fundamentals of our investment case are strong. Our long-term track record is excellent, and we think the outlook for emerging markets gives us real cause for optimism. On behalf of the Board, I would like to thank you for your continued support and confidence in TEMIT. If you received a prize draw form and have not handed it in, please complete this now and hold it up so we can collect it from you. Those online were entered automatically into the prize draw when they registered for the event. I'm told that the prize is a product manufactured by one of our investee companies, Samsung. It's a set of the top of the range earbud headphones, so well worth winning. With no further ado then, I'd like to hand over to Jeff to share his observations on personal investing in the U.K. today.

Thank you, Angus, and thank you also for your very kind words. It's not often that journalists have kind words said of them, although we had our [ fun ] at the Daily Mail this week with Harry, a great victory for common sense and journalism. Good morning, ladies and gentlemen. It is a privilege, a great pleasure to be here today at the AGM of Investment Trust Templeton Emerging Markets. And has -- and as Angus has said, it is brilliant to see so many of you here. I think it's fantastic. AGMs are so important. So if you want to have a chat with me afterwards over lunch, please grab me. If you don't, I won't be offended. But it is so lovely to see so many of you. And also a big thank you to the Board for inviting me along to say a few words about Investment Trust in general. And then to interview the trust's 2 exceptional portfolio managers, Andrew Ness; and lead manager, Chetan Sehgal. He will be joining us via video from Singapore. I will then take questions from the floor, which Andrew, Chetan and Angus will answer, I'm sure, with their usual plan. That will be your opportunity, ladies and gentlemen, to put the managers and the Chairman and the Board on the trust and get answers to any burning questions you may have. So please, please use it. It's what the AGM is all about, holding the custodians of your long-term wealth to account. And encouragingly, already, we've had a number of very interesting questions online. As some of you know, I have been a personal finance editor of The Mail on Sunday, and more recently, money editor at large at the Daily Mail for 32 years. And before 1994, I was personal finance editor for Sunday Telegraph and deputy editor at Money Management. Over that time, ladies and gentlemen, I have grown to love investment trusts. And it's about the only successful love affair I've had in my life. I have a terrible, terrible issue with marriage. Anyway, so I've written about trust for 40 years. Indeed, my first ever look at them was back in 1986 when the Guardian newspaper, yes, the Guardian asked me to write a special [ pullout ] on trusts for its money section. That trip cemented my love for the industry, and I have written about investment trust ever since as well as being a regular investor through [ SIPs and ISS ]. I passionately believe that they remain one of the best ways to obtain long-term returns from our ISS, SIPs and investment portfolios. So let me quickly give you 6 reasons why I think this is the case. First, I believe that collective investments are the best way for most people to invest. And when I say collectives, I mean investment trusts and investment funds often known as open-ended investment companies or unit trusts. Collectives diversify risk by investing across a broad church of securities, a better approach, I think, you might disagree, than buying individual shares. Yes, many investing platforms such as interactive investor and AJ Bell now allow you to buy international as well as U.K. shares. The likes of [ NVIDIA ] and other magnificent 7 stocks. But I still maintain that collective funds are the best way to obtain exposure to international stock markets. Indeed to new exciting investment themes such as artificial intelligence and health care and yes, in terms of exposure to the U.K. market. I think the best approach is through an actively managed U.K. fund. And of course, I think one particular beauty of collectives and investment trusts, in particular, is that you get or you can get access to stock markets you wouldn't otherwise be able to. And I think Templeton Emerging Markets is a brilliant example of this, a pioneer in trust, founded, as most of you know, in 1989 by the late great doctor Mark Mobius, to invest in the world's rising economists and their associated stock markets. Exposure to emerging markets for an investment trust is a super way to diversify our portfolio. It can also add a bit of short and long-term sparkle in terms of stellar returns. I know Angus gave figures for the financial year 5 minutes ago. But yesterday, I looked up the performance numbers for TEMIT. I think the share price is up 69% over the past 12 months, 82% over the past 5 years. I think that's impressive, very impressive and most importantly, long may it continue. Collectives can also give you access to the very best fund management businesses in the world. U.K. companies such as Aberdeen and Troy Asset Management, and global investment powerhouses such as BlackRock, Columbia Threadneedle and of course, Franklin Templeton. Secondly, what I love about trust is that they are durable. Like the monarchy, they are part of our country's fabric, and have been going since 1868 when foreign and colonial was formed to give people a moderate means the opportunity to invest. As many of you will know, FMC is still going strong today. And in my eyes, is a splendid building block for a well-balanced investment portfolio. There are plenty of other trusts that go back to the late 1800s, the likes of City of London, Alliance [ Witten ], which both have annual dividend growth record stretching back in excess of 50 years. All are as relevant today as they were when they were established, and all are investor-friendly just like TEMIT, which is, what, 37 years young. Thirdly, trusts are the most democratic of collective investment vehicle. There are companies with independent Boards, as we see here, appointed to oversee them. And the Boards have the right to sack underperforming managers, and we have seen a lot of that in recent years. And I think it's a welcome trend. Thankfully, TEMIT remains in fantastic investment hands. So there is absolutely no need whatsoever for Angus and his Board to do anything, but let Andrew and Chetan get on with doing a magnificent job. Also, as you all know, you as investors have the right to vote at the Annual General Meeting and to attend it, as you've done today, and to chat to the managers or ask questions often. And the fact that so many of you are here today despite the heat indicates the importance of the AGM. And really, my view on this is long may they remain events that shareholders can attend in personal. Yet, it's brilliant to have virtual access to an AGM, but I think it has to be a right for shareholders to attend a physical AGM. It's something that the Daily Mail has campaigned on, and we'll continue to do so in spite of Harry's determination to close this down. Fourthly, what is key about stock market listed investment trust is that you can always buy and sell them. Investing platforms make this easy. And I think this stands them apart from investment funds such as unit trusts, where sometimes an upsurge in withdrawals can cause a fund to be suspended. We saw it with [ Woodford ] Equity Income and we've seen it in the past with property unit trusts, where trading has been suspended while physical properties have had to be solved. The closed-ended structure of investment trusts is ideal for illiquid portfolios. It means investors can always sell their shares, although the price may not reflect the underlying value of the assets. And it's why I think trust invested in illiquid assets such as real estate, infrastructure and private equity are worth looking at as part of a balanced portfolio. Fifthly, I can't think of a better way to get dividend income than through an investment trust. Unlike investment funds, investment trust can control the income they pay shareholders. For example, holding some back in the good dividend years to pay out when maybe corporate dividends are under pressure, such as in 2020 and 2021 when the world went into lockdown and many companies' revenues dried up temporarily. There are now 50 trusts, which have grown their dividends every year for at least the past 10 years, some for more than 50 years. In fact, some 59 years. I urge you to check out the website of the Association of Investment Companies, where details of these gems can be find. Many income trusts pay income quarterly. Indeed, if you're happy to do some homework, and I've been doing this homework this week. It is possible to build a portfolio that pays monthly income. And of course, if you hold your trust in an [ ISA ], you can receive that income free of tax. Of course, TEMIT's prime focus is on capital return, although it does still pay a small dividend. But again, if you've got income trusts and growth-orientated trusts as TEMIT in the same portfolio, I think that's a great balanced approach to adopt. Finally, what I also love about investment trusts is that information on them is more available than ever before. Many investment-friendly investment trusts, not all, have their own dedicated websites. Visit them and absorb all the info they provide, whether it's the latest monthly fact sheet or the up-to-date management investment thoughts of the fund managers. Yesterday, I took time out to visit TEMIT's website. And I found it packed with great investment articles and great information about the trust. It is well worth taking a look at. And please, please read the wealth section in The Mail on Sunday. I've got to plug my own employer. And the money sections in the [ Telegraph and Times ]. They are full of good investment articles and splendid investment ideas. Some, ladies and gentlemen, are even written by my good self. So empower yourselves to be the very best of informed investors. So enough of my thoughts. It's time to have a fireside chat, if you call that a fireside, to interview the portfolio managers at TEMIT, Andrew Ness and Chetan Sehgal. I will afterwards then invite questions from the floor. And I'd love to see loads of raised hands with questions that Andrew and Chetan can provide and Angus can provide answers to. So without further ado, let me step down and let's have a chat with Andrew and Chetan. Thank you very much. That's lively. Hello, Chetan.

Hi, Jeff.

Nice to see you. Chetan is in Singapore. It's always good to see him. Can we, first of all, Chetan, maybe start with you, my good friend. Can you just kind of walk us through how the TEMIT portfolio has evolved over the past 12 months? And what has driven the splendid performance in the financial year to the end of March and up until over the last 12 months?

Okay. Thank you, Jeff. And it's a pleasure addressing the audience. I hope there is no echo.

No.

So I would say we stuck to our philosophy. Our philosophy is predominantly aimed at investing in structural trends, in companies which have sustainable earning power and which are good towards of capital. And it so happened that some of the structural trends which we invested in, and this is not just of the last year, but we've invested previously as well in these companies. Those structural trends tended to manifest themselves in the AI opportunity. So for example, we always said that the chips are becoming smaller and more powerful and we really don't know what it will lead to. And what really happened is AI came along using these chips, which were becoming more powerful using less power. And suddenly, our new industry has come up, where the importance of compute has increased quite dramatically, and that is resulting in exceptional demand for these chips. And we've seen that many of these companies, which have been supplying these chips to the major hyperscalers and data centers, have benefited disproportionately because of the supply. So I would say it's just a culmination of many years of sticking to our investment approach, finding the right structural trends and buying companies, which we believe have sustainable earning power within those structural trends.

Lovely. Andrew, do you have anything to add to that?

No, I think the technology side of the portfolio, I think people are aware of, has been quite substantial part of TEMIT for some time. I think people are somewhat concerned that it's all been about technology. I think if you look at the performance we've generated, there's been strong returns in other parts of the portfolio. We still like the underpenetrated nature of banking within emerging markets. These economies, unlike here in the U.K. are still at the very early stages of bank penetration. Some countries have very few mortgage ownership levels. And so we've got quite a large exposure, diversified exposure to strongly franchised, well-funded, more capitalized banks in emerging markets, and they've been an additional source of return to the strategy over the last 12 months.

Okay. Chetan, I would describe TEMIT as very much a kind of high conviction portfolio. And you really need to look at the top 10 holdings. You've got some very big positions in the chip companies that you've just talked about. You have TSMC and Samsung among them. Are you -- I mean that's very -- it's quite brave and I think that's what active fund management is all about. But is there a danger of overconcentration of the portfolio? I think you have 81 holdings. But if you look at the top 10, they account for a big chunk of the portfolio, and your biggest holding is something like 17%. So I mean, you're obviously comfortable, but just explain it to shareholders, while you explain while that conviction in these stocks is so strong.

Well, Jeff, it's a function of 2 elements here. One is we also look at the active way. So while these stocks have actually performed very well and they become very large in the market, their index rate has gone up, their market caps have gone up. So for example, TSMC has a market cap of nearly $2 trillion, and [ Hynix ] and Samsung have both above $1 trillion each. So as these companies have actually become large, their weights in the index have gone up. And subsequently, though we have conviction in these companies, we've always kept a positive weight towards these companies. What I would actually say is that we've lowered these rates. So if you just look at our portfolio over a period of time, as the AI rally has actually manifest itself, we have tended to diversify more towards other sectors, especially within China, we've increased our weightages in the electrical companies in BYD, which is a battery company or we bought more Internet names. We've added more to India positions. So by and large, we've -- had we actually just stuck to our original AI names, our probably weightages would have been much higher than where they are now. The other thing which we have done is that within AI itself, we were predominantly on the chip and memory side, and we have diversified that into other aspects like, for example, power and connections and all these elements have also become quite important. So within AI, we have diversified. We have moved to more manufacturing as well. So the same companies which manufacture smartphones also manufacture the AI servers, and it is our belief that these same companies will tomorrow be manufacturing the robots. And we've not talked about it yet, but that is something which is on the annual as well. So we've diversified. We've reduced our exposure to the chips, and we have diversified across countries and across sectors as well. So we have a high conviction in these names, but as these stocks have performed and many of these companies have reached higher valuations than they were previously, we've taken this opportunity to diversify the class.

Okay. Lovely. Andrew, we were having a chat just before this meeting, and we talked about the fact that the portfolio you have, something like 80 stocks. And although there is a concentration of the portfolio in some of these chip companies and of course, Chetan said, constantly diversified. There are a number of companies that you hold that you almost call them -- I think you referred to them as incubators. Just explain that to your investors.

So the portfolio is heavily weighted to our top 20 names. That accounts for close to 60% to 70% of the entire portfolio assets. And then we have what we call a tail, and it's somewhat controversial. I think we talked about the tail at the last AGM. I used added geography at school, and I loved. It is one of my favorite topics. And I live in Edinburgh. So I used the example of Edinburgh Castle being built on a crag and tail. So craig and tail. As the glacier sweat passed, it created this rock structure and then a long tail. Now Edinburgh Castle was built on the crag. And the high street, if you've been to the royal mail in Edinburgh, forms a tail. So I'd like to think -- Chetan thinks I'm crazy, really. I'd like to think about our portfolio in that context. So the core holdings, the crag, the top 20, 30 names that we've got huge conviction, and these are the big meaty parts of the portfolio. That's what's been driving the performance of the portfolio over recent years. We then have our tail. And our tail, it's a variety of things. I talked to Jeff this morning about being an incubator. So there'll be names that we find we like, we identify, we want to own, but we're still in the process of getting conviction in them. Perhaps they've yet to establish the true potential. Perhaps we're getting more comfortable with management, but we want to own those names at this current point in time. So we scale those portfolio of holdings into the tail. There'll be names where perhaps they've done their job in the portfolio. We're harvesting profits. As Chetan said, we've been taking lots of profits of our AI positions over the last 12 months. And some names perhaps we find that are no longer at a discount to their intrinsic worth. We're very disciplined in how we think about valuation. So names that we start to sell down, we don't necessarily do all at once. We're very careful about our exit points. And these can also form part of the tail. Some names within the tail will be small positions because of the characteristics of their business. They may be more volatile businesses, and we call that high beta, to use a technical term. The new businesses that perhaps are more cyclical in nature. But for whatever reason, we don't necessarily see them as forming a large core component part of the portfolio. So think of our tail as being like this incubator of ideas as well as names that we're in the process of increasing or exiting from the strategy.

And can I be [ naughty ] and maybe ask you, just to give me -- to bring that to life. Just give me an example of a company that you're quite excited about, but it remains in that tail.

Yes. We've got a small Peruvian bank, IFS. Peru is a fab country. I traveled in there, have been going down for almost 20 years. We've just had the recent Scottish exit from the World Cup. And I remember, I'm old enough to remember 1978 World Cup that we generally thought we're going to win the World Cup. And unfortunately, we lost 3-1 to Peru, drew with Iran and then beat the European Champions, Holland. So I go down to Peru and people still remind me of that victory. So I've got a love-hate with Peru, but it's a country, it's fabulous. There's about 30 million Peruvians in terms of population size. There's about 300,000 mortgages originated in the financial system. And that goes to the point I made earlier, Jeff, about low levels of penetration within many of our economies. Now we've got a small position there. It's quite a volatile country because of political backdrops being quite volatile, heavily commodity dependent and likely to be impacted by the current incoming El Niño, which has a big impact on offshore fishing activity. So more volatile names and perhaps other names in the portfolio and I think a business we like, but just kind of deserves to have a small active position within the portfolio.

Okay. That's an investment tip for you, ladies and gentlemen. I'm not sure that you can buy that through AJ Bell, but we'll...

Yes, I'm not allowed to -- investment.

I know. Chetan, you mentioned earlier about India. Just -- it's a stock market that captures and attracts a lot of attention from U.K. investors. There's specific funds investing purely in the Indian stock market. But how do you assess valuations there and the opportunities that, that market provides for TEMIT and TEMIT shareholders?

Yes. So we've been underweight India for quite some time. And I think 3 years back, it was probably looking like a bad decision. And in the last 2 years, India has actually underperformed and we seem to have done pretty okay there. On an overall basis, I think India, there's no dispute. India is one of the long-term growth markets within emerging markets. It is getting many of its policies right. But obviously, as a growing emerging market and as a large country, it has its own challenges. The stock market has been unusually frothy over the last 2 years. And now correction is taking place because the earnings are not really meeting the expectations of investors. So we had high valuations and lofty expectations, and both of these are correcting. So we've actually taken this downturn in the Indian market to build our positions. But we prefer to build more in China as compared to India in the last 12 months. And the reason being that because of -- we were building the position and then the Iran was started and India is far more oil dependent as a percentage of GDP as compared to a country, say, like China. So we shifted a little bit. We added to India, but we shifted a little bit more to China in this decline. But on a year-on-year basis, we have narrowed the underweight in India. And we -- and including our U.S. stocks, which are predominantly Indian companies, we are more or less neutral to India now.

Okay. And you touched there on China and the fact that you've added to your exposure there. Andrew, can I ask you, do you believe that China is still a core part of the emerging market story? I mean, are you as wedded to it as you have been in the past?

I'll take your second part there. I think we've been cautious in China. I think our shareholders will know that China has typically been an underweight market for us. A variety of factors. I think the well-known factors in China are of rapidly aging demographic, significant deflationary pressures within an economy that saw excess investment built up over recent years. Youth unemployment has surged over the last 3 to 5 years as well. So it's not been a great sort of economic environment. But what you find in China is incredible entrepreneurship, incredible innovation, incredible R&D capabilities, substantial competition as well. We've seen -- one of the biggest challenges, I think, to find sustainable business models in the Chinese market is that there are multiple competitors in most industries and most sectors. And that makes finding the type of business that we really want to identify, that can defend its competitive advantage, persist with attractive capital returns, grow in a secular way, it's harder typically in China to find those types of businesses. So what we have to be in China is nimble. We have to be very focused. We have to look for very specific opportunities. So just to give you one example. Our team on the ground in Shanghai, we've got a fabulous analyst called [indiscernible]. She looks at our industrial space in China. She did a whole host of work for us looking at the investments required as China is upgrading its electric grid capabilities. Now many of you will know that China has been leading in deploying renewable power in its country. So its wind power and its solar power is now a substantial portion of its primary energy resorts. Unfortunately, those resources are typically north and west in the country. And where do people live in China? They live in the East and the South, and you need massive transmission capabilities to take that renewable generated power to where it's demanded. And so there's very specific companies that are producing equipment specialists, high value-added equipment, high-voltage DC connectivity and transmission to get that power to where it's needed. And there's a couple of companies that we've looked at in the last 6 months. We've added to the portfolio specifically on that. So China is very much investable. You have to be cautious because there are headwinds, but we can find really competitive businesses there if you've got the patience and the scale and resource to look for them.

And they're in the tail of the trust?

They're currently, but we're getting more confident with them, and we shall see, Jeff.

We will indeed. Are we?

Move over to Q&A.

Yes. Okay. Well, thank you very much for your insight into the investment opportunities that are available in the emerging markets.

And Jeff has very kindly agreed to compare the Q&A. And we also have some questions from some viewers online as well, which I can pass over to you, sir.

Thank you very much. Okay. Right. I think really, given the fact that you've all traveled, I imagine, some of you, great distances today to be here and to stare at us and admire us and hear our wonderful words. But have any of you got a -- brave enough to ask the first question? There's a gentleman -- can just yet. Would you just give -- I don't want your full name. Just make it friendly. Just -- pardon?

My name is David.

David, nice to see you.

And I'm sure you like this question, Jeff, because it's your type of question, yes.

So this question, is this for?

It's for the Board actually.

Good. Okay. Well, go.

I admire TEMIT greatly because of the conviction. But I'd like to ask the Board in the sense that has anyone actually bought shares except for one person in the last 2 years?

That's a nice one to start with.

I mean we all have shareholder -- and Sarika certainly has bought shares with them last year and so has David. So it's quite a cumbersome process when you're on the Board because of the permissions that you have to get. So one tends to buy them at start and then hang on to them. But yes, there's continued conviction on our part, certainly.

I should also declare -- independently managed. So I have no control over what is bought or sold.

It's reassuring to hear. I mean, they have their own wealth invested in the trust, and that's good. It's called skin in the game, and I think it's very important. Sir, nice to see you, your name?

Is that on? My name is [ Marcus ].

Hello, Marcus. It's nice to see you.