Manager Ghadir Abu Leil-Cooper explains: “The idea is to invest in what the region has to offer, whether it is demand driven, supply driven, or whether it is unique features.”
The team adopts a quality growth at a reasonable price (Garp) approach, with a focus on finding “unique opportunities”. These include companies with unique franchise values, strong, unrecognised growth profiles and those that are reasonably priced where the fund can extract value over the typical three- to five-year investment horizons.
Ms Abu Leil-Cooper explains the franchise element effectively looks to put a value on the quality of the company. This part of the process looks at three aspects, the unique competitive position of the firm, the management structures and team, and the strength of the balance sheet.
The growth aspect of the analysis uses the team’s own models and assumptions to understand where the company might be heading in the next three to five years, while the value aspect uses a discounted earnings model to decide if a stock has potential upside.
The manager adds the aim of the fund is to exploit the unique opportunities in Mena, of which the most important is the young and growing population in the region.
“This implies that we have years of demand ahead of us – demand for services and for goods. We try to find companies that give access to all of these,” she says.
“Also, service provision, insurance, retail, education and healthcare are all places where we think there is structural growth, so we look for firms in those areas.”
The macroeconomic landscape plays a part in such a volatile region, with the team taking account of the differentiating factors between countries, such as inflation and growth rates, as well as the impact of politics and drivers of growth.
Given the frontier nature of the region, the fund sits at a level five out of seven on a risk-reward scale, while the ongoing charge for the A-income share class is 2.77 per cent, its key investor information document shows.
For the five years to March 12 the fund’s A-income share class has delivered a strong 43.4 per cent return, significantly outperforming the 18.8 per cent gain by its benchmark, the MSCI Arabian Markets ex South Africa index, data from FE Analytics shows.
Areas that have helped recent performance include stocks benefiting from the population growth, including healthcare operators NMC Health and Al Noor Hospitals, which it recently exited after it was purchased by South African firm Mediclinic.
Ms Abu Leil-Cooper explains: “These are the sorts of companies we like to put in the fund. The index is full of banks, insurance companies and real estate, [and that] is not the sort of companies that have the most unique [opportunities] in the region.”
The manager notes there are always changes to the strategy. “Structurally, we look for the highest quality, unrecognised growth companies. We are quality garp [focused], so where growth firms have fallen [in price] too much you add to them, or if [growth is] reflected in the share price then you take profits. Sector and country allocation is an afterthought, it comes from the company selection.”
| VERDICT - Jake Moeller, head of UK and Ireland research, Thomson Reuters Lipper |
| Barings has a good pedigree for emerging market offerings and Ghadir Abu Leil-Cooper is an excellent steward. This fund has a growth bias and has had more volatility than other offerings in the market, but is a more pure Mena mandate than similarly named products. It has scored very well in the Lipper Leaders ‘consistent return’ category over five years despite the tough last quarter of 2015. |
Looking ahead Ms Abu Leil-Cooper remains optimistic about the opportunities, noting that even while some frontier markets have been upgraded to emerging status, there is still plenty of choice.
“While global macro factors will continue to contribute to volatility, we believe that the prospects for the Mena [region] remain attractive,” she says.
“The combination of strong, long-term growth potential, favourable demographics and high levels of infrastructure spending is a powerful one. Consumers in Mena, for example, carry a fraction of the level of debt of some of their developed market counterparts, and there is considerable scope for growth in areas such as financial services when compared with developed market peers.”
