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Emerging Markets

Our Emerging Markets Equity strategy adheres to the same value discipline that has produced success in the U.S. (large, medium, and small capitalization) and non-U.S. markets for more than 30 years. The Emerging Markets Equity strategy at Barrow Hanley was a logical extension and expansion of the Barrow Hanley track record of success in investing in out-of-favor, low-expectation stocks in non-U.S. markets, which are arguably, less efficient than the U.S. market. Our emerging markets value equity portfolios reflect value characteristics such as 1) price/earnings ratios below the market (MSCI Emerging Markets Index), 2) price/book ratios below the market, 3) enterprise value/free cash flow ratios below the market, and 4) dividend yields above the market.

Strategy Summary
Asset Class Emerging Markets Equity
Investment Style Value
Portfolio Benchmark: MSCI Emerging Markets Index
Portfolio Assets $82 MM as of 6/30/2018
Commingled Fund Open
Separate Account Open

Investment Process

Our approach to the equity market is based on the underlying philosophy that markets are inefficient. We believe that these inefficiencies can best be exploited through adherence to a value-oriented investment process dedicated to the selection of securities on a bottom-up basis. We do not attempt to time the market or rotate in and out of broad market sectors, as we believe that it is difficult, if not impossible, to add incremental value on a consistent basis by market timing.

We stay fully invested with a defensive, conservative orientation, based on the belief that superior returns can be achieved while taking below-average risks. We implement this strategy by constructing portfolios of individual stocks that reflect value characteristics such as: 1) price/earnings ratios below the market (MSCI Emerging Markets Index), 2) price/book ratios below the market, 3) enterprise value/free cash flow ratios below the market, and 4) dividend yields above the market. Barrow Hanley's history of value investing indicates that a strategy of emphasizing low price/earnings ratios, low price/book ratios, and high dividend yields provides a measure of protection in down markets, as well as participation in improving economic cycles.

The equity research process at Barrow Hanley is conducted on a bottom-up basis by our experienced analysts and portfolio managers. Our team focuses primarily on fundamental securities analysis, valuation, and prospects for a return to fair valuation.

In our portfolio construction process, we do not attempt to implement macro bets from a top-down perspective. While we adhere to internal guidelines to ensure proper diversification, industry and sector weightings are a residual of the bottom-up stock selection process and may vary meaningfully at times from the respective weightings in the MSCI Emerging Markets Index.

We construct portfolios with non-dollar currency exposure (i.e., unhedged) in a fully-invested manner with no more than 5% in cash. While the Emerging Markets Equity strategy is primarily invested in companies domiciled in markets included in the MSCI Emerging Markets Index, we may, on an opportunistic basis, invest up to 10% of the portfolio in companies domiciled in frontier markets, as defined by MSCI.

Portfolio Characteristics as of 6/30/2018

  Portfolio Benchmark1
P/B Ratio 1.3 1.6
Weighted Average Market Cap ($B) 11.4 95.4
Median Market Cap ($B) 5.3 6.3
Dividend Yield 3.4 2.5
P/E Trailing 1-Year (Ex. Negative Earnings) 13.2 13.2
1MSCI Emerging Markets Index
Regional Allocations as of 6/30/2018
  Portfolio
Americas 26.2%
Asia 54.7%
Europe, Middle East & Africa 19.1%
Top Holdings as of 6/30/2018
Ecopetrol 2.8%
LS Industrial Systems 2.6%
Gran Tierra Energy 2.5%
CJ O Shopping 2.5%
SJM Holdings 2.3%
China Mobile 2.3%
Barclays Africa Group 2.1%
Gentera 2.0%
Grand Korea Leisure 1.9%
Yuanta Financial Holdings 1.9%
Sector Weightings as of 6/30/2018
Financials 26.2%
Consumer Discretionary 18.6%
Industrials 10.3%
Energy 9.1%
Consumer Staples 8.7%
Utilities 7.8%
Information Technology 6.1%
Health Care 4.7%
Materials 3.8%
Telecom Services 2.3%
Real Estate 2.3%
Performance as of 6/30/2018
Annualized Portfolio Returns (%)

*3 Month returns are not annualized.
**Inception Date: 10/1/2012

Disclosure

Barrow Hanley's returns are shown before investment management fees and custody expenses. Index returns do not reflect transaction costs, management fees, and other expenses. Performance is expressed in U.S. currency. Holdings and statistics are presented as supplemental information to the BHMS Emerging Markets composite. A full disclosure presentation may be accessed from the link above. Barrow, Hanley, Mewhinney & Strauss, LLC claims compliance with the Global Investment Performance Standards (GIPS®).

All institutional product information has been provided by Barrow, Hanley, Mewhinney & Strauss, LLC. Any questions about this material or requests for additional information may be made directly to the firm from the "Contact Us" link above.

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