The assets of the Legg Mason Emerging Market Trust are managed on a sub-advisory basis by Esemplia Emerging Markets, ("Esemplia"), a subsidiary of Legg Mason, Inc. and an affiliate of Legg Mason Australia.
The emerging market equity investment process is disciplined and systematic, integrating proprietary bottom-up (security) and top-down (country) insights. The investment process style is "core", without bias to growth or value and designed to generate excess returns under most market conditions. Currency hedging is not a part of the investment process.
The process is focussed on obtaining an information advantage from key determinants of stock prices:
- the Intrinsic Value of companies in the universe, on the basis that stock prices tend towards equilibrium around the present value of a company's future cash flows. The stock selection process is based on anticipated earnings trends and Dividend Discount Model valuation;
- a measure of Country Risk as the major portion of the discount rate used to discount forecast company cashflows. Disciplined country risk analysis focuses on future changes in country risk and valuations as opposed to reacting to current events; and
- an understanding of potential Corporate or Earnings Surprises that would cause a re-evaluation of consensus forecasts.
The approach focuses on the creation of free cash flow and the eventual return of these cash flows to shareholders. This is important given that in some emerging market companies, free cash flow does not mean that shareholders will ever receive the cash.