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How an $800-million RBC emerging markets dividend fund manager is investing right now

It has been a rough few months for emerging markets. Geopolitical tensions are adding a wide swath of uncertainty from China to Brazil to Turkey.

“The next few months will continue to be volatile,” predicts Laurence Bensafi, deputy head of emerging markets and senior portfolio manager at RBC Global Asset Management, based in London, who has more than US$800-million in assets under management across three funds. Her main fund, the RBC Emerging Markets Dividend Fund, has returned 10.9 per cent in the year ended June 15, after fees. That gain is despite an 8.6-per-cent dip over the past three months because of volatility in emerging markets spurred by trade wars and political unrest.

The Globe and Mail recently spoke with Ms. Bensafi about how she’s investing amid the uncertainty and the sector she wished she owned more of right now.

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Describe your investment style

My strategy is value with a dividend tilt. I tend to buy companies that are cheaper than the market. They tend to be a turnaround story, so a riskier part of the market. It often means being contrarian. I look for opportunities in countries and sectors with good quality companies that are trading at an attractive valuation. I also look for companies that have a good and growing dividend. I think it’s a good way to assess the quality of a company. It’s a bit unusual in emerging markets, but I think it’s an approach that will be more and more important over the years and as the asset class matures.

What concerns are you hearing from investors today?

It has been a difficult time for emerging markets in the past few months. Emerging markets have had strong run since about February, 2016, when the market bottomed. Geopolitical issues are largely to blame, including trade wars and the rise of populism in some countries. What we are trying to do is separate the short-term noise [from] the fundamentals, which haven’t really changed. The macro side hasn’t really changed, either.

What have you been buying lately?

One area where we’ve been adding is China. The economy is transforming. A lot of that is driven by growth in consumption of everything from property to cars to restaurants. We have been adding exposure to China, especially in consumer names. An example is Kweichow Moutai, a partially state-owned enterprise that makes a liquor called baijiu. Everyone drinks it in the country. We’ve owned it for a while and have added a bit to it lately. Another is Midea Group, a Chinese electrical appliance manufacturer that makes products such as air conditioners, washing machines and kitchen appliances. As for other areas, we are in a wait-and-see mode. We need a bit more clarity about what’s going to happen in some of those economies.

What have you been selling?

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We’ve been reducing in some areas that are riskier. For example, we’ve trimmed a bit in Brazil heading into the election in that country in October. Nothing dramatic, though. In Brazil, we have a relatively strong exposure to state-owned enterprises. We have only a small exposure to Turkey, but trimmed it a bit when things started to get shaky a couple of months ago.

What’s the one stock you wish you bought?

We could’ve had bigger exposure to the information technology sector in China. We own [e-commerce giant] Alibaba Group. We didn’t buy Tencent [an investment holding company that includes internet, entertainment, artificial intelligence and technology companies].

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