The Genesis Emerging Markets Trust believes in thorough fieldwork when seeking out promising investments.
"A desk is a dangerous place from which to view the world" warned John le Carr. Yet most fund managers spend a huge amount of time staring at Bloomberg screens, even though the same information and analysis is equally available to tens of thousands of other investors. It therefore rarely adds value.
The team at Genesis Investment Management, specialists in emerging-market equities, is different. The 12 members of the investment team share just one screen. They spend most of their time visiting companies, talking to management and canvassing the views of customers, suppliers and competitors in short, seeking original insights into investment opportunities.
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A way in for retail investors
Genesis does, however, manage an investment trust, Genesis Emerging Markets (LSE: GSS) with £1bn of assets, providing an access point for retail investors. Since the shares trade on an 11% discount to asset value, retail investors can invest on better terms than the large institutional clients and a dividend yield of nearly 2% provides a bit of income.
Long-term performance has been excellent, with an annualised net investment return since launch in 1989 of 11.6%, 2% ahead of the benchmark emerging markets index. Returns in the last year of 13.5%, nearly 10% ahead of the index, have been outstanding.
This followed a few years of mild underperformance. Arguably, Genesis's collegiate style, reminiscent of academia rather than the Darwinian world of finance, prevented prompt action to correct flaws in investment thinking, but performance has since caught up fast. That does not imply that GSS takes a lot of risk quite the reverse.
A worldwide footprint
Mostly, though, the team concentrates on "long-term investment in good-quality businesses with a sustainable competitive advantage and an attractive valuation," according to Andrew Elder, managing partner. The quality bias means that the portfolio is more expensive than the index (18 times earnings against 12.6), but has a higher return on equity (18.6% compared with 15.8%). Exposure to companies controlled by the state is low, while there is a skew towards consumer stocks, such as Alibaba, New Oriental Education and Vinamilk.
Genesis, then, is not simply relying on the superior economic growth of emerging economies to deliver a favourable tailwind. It works hard to establish a constantly expanding list of opportunities, some of which will turn out to be great investments. These simply cannot be analysed by inexperienced investors thousands of miles away with universally available information. Genesis provides a role model for how it should be done.
Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
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