The Artisan Developing World Fund (ARTYX) is crushing the market this year by tipping traditional investing principles into emerging markets. The fund, which has $3.1 billion in assets under management, has gained 19% this year, outperforming its benchmark MSCI emerging markets index by about 16 percentage points, according to FactSet. His stellar performance in 2023 puts him in the top percentile among his peers, according to Morningstar. The fund has an expense ratio of 1.28%. Lewis Kaufman, the portfolio manager who has been overseeing the fund since its inception in 2015, said its secret ingredient for outperformance is so-called “passport companies.” “These are companies that are based in developed markets but economically tied to emerging markets,” Kaufman said in an interview. “We like them not just because of their speed to revenue, but because they sell aspirational products and services.” By domicile, the Artisan Developing World Fund has only 57% of its portfolio in emerging markets. However, exposure to emerging markets should increase to 70% if you look at economic exposure by revenue, Kaufman said. The San Francisco-based manager said Estee Lauder is an example, as the cosmetics business is highly correlated with aspirational consumer demand, outbound tourism and duty-free opportunities in China and around the world. Nvidia, the fund’s largest holding with a weighting of 6.7%, is also a passport company, as the chipmaker generates a significant amount of sales in China and other developing markets. The chip giant has been at the center of this year’s stock market obsession around artificial intelligence, and Nvidia is now on the cusp of a $1 trillion market cap after it made a shocking forecast. strong future demand. “I will always look to retain residual positions and companies… I think Nvidia has been a source of funds for us,” Kaufman said. The manager, who earned an MBA from Duke University, oversaw a Thornburg Investment Management fund with a similar strategy for six years before joining Artisan Partners in 2015. In addition to those passport companies, the fund also invests in a large number of companies. domiciled in emerging markets. Examples include online marketplace MercadoLibre in Argentina, Singaporean tech conglomerate Sea Ltd., and Chinese food delivery giant Meituan. Kaufman said he also invested in Kweichow Moutai, a publicly-listed, state-owned Chinese high-end spirits company. The manager said that the company has a market capitalization of more than $300 billion. By comparison, Diageo, whose brands include Johnnie Walker, Smirnoff and Guinness, has a market capitalization of about $97 billion. “I think that speaks to the inherent scalability of the Chinese market itself,” Kaufman said.