Mark Mobius, the pioneer of emerging-market investing has returned with a new fund.
It usually makes sense to avoid newly launched investment trusts; better to wait a year until they are fully invested and have proved themselves. This may result in a higher price being paid, but the risk of a mistake is lower. So it seemed when Mobius Investment Trust (LSE: MMIT) raised £100m from investors last September, when the investment climate was rocky and emerging markets (EMs) were performing poorly.
Mark Mobius was a pioneer of investing in EMs, launching the Templeton Emerging Markets Investment Trust (TEMIT) more than 30 years ago. He so relished his nickname of “the bald eagle” that he published an autobiographical comic book under that title. His team, which included his deputy Carlos Hardenberg, went on to build a $40bn business at Templeton but, in time, the performance tailed off. Mobius left in early 2018, and it was easy to assume that 30 years of globetrotting had left him ready for retirement.
Back to basics
Six months later, unable to face the prospect of lazing around on a beach, Mobius reappeared with a new business, Mobius Capital Partners, which included Hardenberg and other experienced professionals. They had come to the conclusion that their problem at Templeton was that they had too much money, which forced them into owning either the largest companies or big holdings in lesser ones that were impossible to sell. The new business would limit funds managed to $2bn, employ just one strategy, and revert to the style that made TEMIT successful.
This includes a focus on small and mid-cap companies. There are far more of these than large companies, and they tend to be driven by founders and entrepreneurs, as well as being less well known by analysts or other investors. Not that the team likes small companies per se; it is looking for those that can become large companies. The pursuit of growth requires a focus on sectors such as internet-enabled businesses, education and healthcare, rather than the financial and resources sectors, while the team also focuses on environmental, social and corporate-governance (ESG) issues. This is not out of a sense of public and moral duty, but more because the ESG Leaders sub-index has massively outperformed the overall EM index over the past ten years. Mobius intends to invest for the long term, buying companies below their intrinsic value and seeking to catalyse a re-rating.
The £100m raised in the flotation was steadily invested in the final quarter of 2018, but at the end of the year 44% of the portfolio was still in cash. This bolstered performance; the net asset value (NAV, the value of the underlying portfolio) barely budged, while the EM index lost 5.6%. Now that EMs are recovering, cash will be a drag on performance, so the pressure to invest is on. India is a particular focus; exposure was zero at year end, but Hardenberg expects it to be the largest country allocation.
Opportunities to add value
Hardenberg is optimistic about EMs in general. He believes that the recent rally in the dollar is mature, while EM companies are in the midst of a multi-year improvement in margins.
He also thinks they have de-levered more than US companies, and are seeing a stronger acceleration in cash-flow. The MSCI EM index is at the same level as eight years ago, but valuations are lower, quality is higher and the outlook better. There are ample opportunities to add value through careful stock selection, especially in the less liquid areas of the market.
MMIT shares have rallied 10% in the year to date but, at 103p, are just 3% above the issue price and at the same 2% premium to NAV at which they were issued in September. The upshot? It’s time to bend the rules and jump aboard.