Ardevora’s Jeremy Lang has said his decision to change his focus from emerging market-focused businesses to those which concentrate on the domestic economy is the “most profound switch” since the funds launched.
Mr Lang set up Ardevora Asset Management with his former colleague at Liontrust, William Pattison, launching two UK equity funds and a global equity fund at the start of 2011.
Initially, both the UK and global funds bought into companies that were listed in developed markets but generated significant revenues from emerging markets. However, Mr Lang said the portfolios had shifted in the past three years and were now avoiding those businesses. The manager said he was cautious of the risks coming from emerging markets, particularly in China, which he sees as a “risk-creating investment rather than an opportunity-creating one”.
“We are still seeing lots of nasty things coming out of China and emerging markets, which has been getting worse since early last year,” he said. “There have been several top down flares from China, such as the spikes in the interbank lending rate. [This] shows there is something weird going on which is not good and you have got to tread extra carefully when investing directly in China or in businesses telling you that the reason you should own them [is because they offer] exposure to China.”
Mr Lang said some management teams were “behaving irrationally” when it comes to generating profits.
“They are convinced they can get returns out of China even though it has been disappointing so far,” he said. “Now they are in denial so they are throwing more money at it.”
The Ardevora managers run their funds based on their ability to exploit inefficiencies in the market through the use of behavioural psychology.
The process has been successful so far, with all three funds, Ardevora UK Equity, Ardevora UK Equity Income and Ardevora Global Equity, all top decile for performance in their respective IMA sectors since launch.
