Gary Greenberg manages this £478m strategy, which launched in December 2008. He notes: “The aim of the fund is to provide a vehicle for investors to participate in emerging markets in a way that gives them what we consider to be the best opportunities in [the sector].”
Mr Greenberg runs a fairly concentrated portfolio of between 55 and 60 stocks and insists that he is not looking to replicate its benchmark, the MSCI Emerging Markets index, so the fund has an active share of more than 90 per cent.
He says: “We’re offering a collection of good companies that can compound over time, firms you’d want to own whether you were investing in emerging markets or not. Our overarching philosophy is a process of finding good businesses with good management and good corporate governance, but finding them at a time when the price is attractive.
“Our approach is to do mostly detailed, rigorous, bottom-up analysis, but complement that with a macro overlay of explicit political and economic analysis. We really understand the environment – the ecosystem that our companies are operating within,” the manager adds.
As Mr Greenberg acknowledges, Hermes Investment Management is known for focusing on environmental, social and corporate governance issues as part of its investment process. He says: “We believe in responsible investing and in particular that comes home in emerging markets where it’s critical – it’s not an optional ‘nice to have’.
“In most cases it’s absolutely required to both understand the liabilities a company may be storing up in terms of its environmental stewardship, or lack thereof, and its social mandate to operate. In other words, how it treats its employees and how it treats the community in which it presides.”
An ongoing charge of 1.14 per cent applies to the F-accumulation, RDR-compliant share class, while the vehicle is considered slightly riskier, at level six out of seven on the risk-reward scale.
| EXPERT VIEW - Oliver Stone, head of research, Fairstone Group |
| This fund is run by the highly experienced Gary Greenberg, focusing on the selection of companies with quality franchises and proven track records that trade at attractive valuation levels. Stocks are selected via bottom-up and top-down research processes, with a focus on long-term growth drivers. The manager also places a strong emphasis on corporate governance issues, adding a further layer of due diligence. The vehicle has provided investors with attractive absolute and risk-adjusted outperformance since launch, with notably lower levels of capital loss (maximum drawdown) through falling markets compared with its peer group average. |
The fund has produced positive returns over the three and five years to March 30 2016 but has posted a loss in the past year. Data from FE Analytics shows the vehicle delivered 12.3 per cent across three years, while the Investment Association Global Emerging Markets sector average return was a negative 10.2 per cent and the MSCI Emerging Markets index lost 8.8 per cent.
Over 12 months the fund shed 4.4 per cent, but it still outperformed the sector’s average negative return of 9.8 per cent and the index’s 9.6 per cent loss.
The portfolio had benefited from being underweight Brazil, although it is now neutral the country following changes to several underlying holdings. Mr Greenberg notes: “We had very little in energy last year, which helped us. [But this] reversed in February and March as Brazil and oil prices shot up 50 per cent. A lot of the beaten-down Chinese and Korean heavy industry companies also rallied substantially, which is getting people interested in emerging markets.
“Our fund tends to underperform the benchmark in what I call jump rallies, and so in March we have underperformed a bit, probably by about 150 basis points.”
However, performance is slightly more predictable over the longer term, as the manager explains: “Looking at the past three years, we don’t put a prescriptive number on it but typically we’d expect about two thirds of alpha to come from the bottom up and a third from the top down. That’s really played out and last year around 80 per cent came from bottom-up stock selection.”
Taiwanese firms in particular helped performance in 2015. The portfolio also benefited from a reduction in exposure to China’s A-shares, Mr Greenberg recalls.
He explains: “Around this time last year we began to cut our exposure to China. We were overweight in Chinese A-shares, as we had been for a couple of years. We had identified this area of the market as being very undervalued in 2012-13. Then the Chinese A-share bubble took off and we enjoyed that ride, but about this time [in 2015] we started to get pretty cautious and began cutting back. By the beginning of June we had reduced our overweight to China from around 12 per cent to roughly 2 per cent.”
The manager has since increased the fund’s overweight to China, to 4.5 per cent.
