This £45m fund was launched in May 2011 and takes a high-conviction approach – typically holding between 50 and 80 emerging market stocks . The vehicle aims to outperform the MSCI Emerging Markets index by at least 2 per cent a year across a rolling five-year period.
In June this year the fund was merged into BNY Mellon’s onshore Ucits range, allowing UK retail investors greater access to the strategy.
Rob Marshall-Lee manages the fund, with Sophia Whitbread as alternate manager. It has an investment process built around Newton’s thematic stock-picking approach, which is combined with a long-term horizon and an emphasis on active management, quality and governance.
“We use four pillars within our investment philosophy, which involves: evaluating each idea in a global context; using themes to understand the forces driving global change; conducting rigorous fundamental analysis; and constructing portfolios with high-conviction ideas,” Mr Marshall-Lee says. He points out that Newton’s investment themes – including population dynamics and state intervention – provide a wide perspective and can be relevant to emerging markets.
He adds: “We believe Newton’s thematic-investment approach works well in emerging markets in helping the team block out market noise, identify risks and harness long-term opportunities. Environmental, social and governance (ESG) considerations are embedded into Newton’s investment process. ESG assessment is even more pertinent in emerging markets as there is often a dominant shareholder or significant state involvement in many of the larger listed companies. The key question is whether a company is being managed in the interests of all shareholders, as they are always minority investors.”
While the investment process has not changed, the manager notes the fund’s positioning has evolved to reflect a “refreshed interpretation of our themes against a changing market backdrop and further development of our opportunity set”.
As an example, Mr Marshall-Lee says the team has gradually increased exposure towards the long-term consumer story in emerging markets, with an emphasis on the “newer” sectors of healthcare and e-commerce that make up smaller portions of the index. At the same time it retains its underweight position in resources and financials. He explains: “This positioning contrasts significantly from both the index and other emerging market funds. Whereas the index is dominated by the sectors that have performed well in the past, such as resources and financials, we continue to use our themes to identify the drivers of performance for the future.”
The fund sits at a risk-reward level of six out of seven, its key investor information document shows, while the ‘clean’ W retail share class has an ongoing charge of 0.95 per cent.
Since inception to September 11 2015 the fund has lost 2.9 per cent, although this compares favourably to the 17.7 per cent average loss from the IA Global Emerging Markets sector and the MSCI Emerging Markets index’s fall of 18.2 per cent, data from FE Analytics shows.
However, for the three years to September 11 the fund moved into positive territory, returning 9.9 per cent against the index’s drop of 7.5 per cent and the sector average loss of 8.1 per cent.
Mr Marshall-Lee notes there has been little change to the overall positioning of the fund, which has benefited from being overweight to the emerging market consumer sector through the “healthy demand” and “net effects” themes.
The fund continues to focus on structural growth areas with a big tilt to consumer plays, including internet stocks, and away from commodities and commodity-dependent economies. But he adds: “We took advantage of the recent market volatility by adding to holdings in defensive structural growth companies, such as blood plasma firm China Biologics Products and Chinese biotechnology company 3SBio, which were both caught in the indiscriminate crossfire of the China and emerging markets sell-off. There are potentially interesting new opportunities arising from big currency moves and lower valuations and we continue to monitor these closely.”
EXPERT VIEW
Juliet Schooling Latter, director of research, Chelsea Financial Services
This is a nice little fund with less than £50m assets under management, which is very much under the radar. This year hasn’t been its best and the vehicle has slightly underperformed both the sector average and the market year to date. But overall the performance has been impressive and pretty steady, with good positive returns in the previous three calendar years, including a return of 5.5 per cent in 2013 when the market and most of its peers lost money. Performance has also been hurt by an underweight to China, although we agree with the asset allocation. We also like its overweight to India.
Nyree Stewart is features editor at Investment Adviser
