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We take a differentiated approach to Value investing.

The RBC Emerging Markets Value Equity Strategy reached 10 years since its inception in July 2013, with a total AUM of USD1.286 billion1.

Over this time, the strategy has outperformed both its primary benchmark, the MSCI EM Index, and the Value index, the MSCI EM Value Index, despite the Value style being out of favour for the majority of this period.

When reflecting on the past 10 years, we believe there are a number of aspects that have enabled us to build a differentiated portfolio and deliver a strong performance track record. In our piece, we discuss:

Quality value approach: we seek to invest in temporarily mispriced securities with strong fundamentals and catalysts for re-rating. We look at traditional valuation measures, such as P/E and P/BV, as well as metrics of value creation over time, such as growth, cash-flow returns on investment and dividends, as well as the quality of a company. The strategy has consistently traded at a significantly cheaper valuation than the MSCI EM Index, without sacrificing quality.

Durability and ESG: a critical part of our investment process, and specifically our bottom-up research, is our focus on ESG which helps us mitigate ESG-related risks and focus on those companies with durable business practices that are able to achieve sustainable, long-term returns. One outcome of our focus on ESG is the carbon intensity of the strategy, which is significantly lower than that of the MSCI EM Index.

Thematic top-down research: we feel that our independent research is a key source of competitive advantage. Our top-down research is based on five structural, long-term themes, all of which have been in place for several years and some since inception. Digitalisation is one of these themes, and within our Value strategy we have maintained consistent exposure to technology, which is unusual for a Value approach.

A diverse team focused on continuous improvement: we feel we have the optimum team in terms of size, structure and skill set. We have built a diverse team in terms of gender, culture, education and experience, while creating a collaborative environment where everybody feels a strong sense of ownership and responsibility. In our piece, we talk about how – at our annual offsite – we review areas that have been successful, as well as those where we can improve.

The case for Value investing

The new economic regime, characterised by higher interest rates, higher inflation, and higher raw material prices, has made quality Value investing more attractive as there is greater emphasis on profitability, strong balance sheets and dividends. On the other hand, growth will be harder to come by as money is no longer free and the economic environment is more challenging.

We have also seen the profitability of Value names improve, evidenced by the spread of RoE between expensive and cheap companies narrowing, while the spread of performance between Growth and Value is still very wide, despite the better performance of Value in recent times.

What we have found is that the elevated valuations of the most expensive Growth stocks aren’t justified by their fundamentals, and we expect to see further weakness in this segment, given the pressured economic backdrop, higher rate environment and rising competition.

Please read the full piece here.

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1 As at 30 June 2023.

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RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc. (RBC GAM Inc.), RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management (UK) Limited (RBC GAM-UK), RBC Global Asset Management (Asia) Limited (RBC GAM-Asia) and RBC Indigo Asset Management Inc. (RBC Indigo), which are separate, but affiliated subsidiaries of RBC.

In Canada, this material is provided by RBC GAM Inc. (including PH&N Institutional) and/or RBC Indigo, each of which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, this material is provided by RBC GAM-US, a federally registered investment adviser. In Europe this material is provided by RBC GAM-UK, which is authorised and regulated by the UK Financial Conduct Authority. In Asia, this material is provided by RBC GAM-Asia, which is registered with the Securities and Futures Commission (SFC) in Hong Kong.

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Any investment and economic outlook information contained in this material has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions in such information.

Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.

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Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index.

Some of the statements contained in this material may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.

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