Fund Profile

Barings Emerging EMEA Opportunities 16 May 2024

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Barings Emerging EMEA Opportunities. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
BEMO has had a strong year, and offers multiple layers of value…
Overview

Barings Emerging EMEA Opportunities (BEMO) is the largest investment trust focussed on the diverse and uncorrelated EMEA universe . These countries figure only lightly in the broad emerging market indices and funds, yet have high growth potential with idiosyncratic drivers that could improve risk-adjusted returns on many portfolios.

Managers Matthias Siller and Adnan El-Araby have built a portfolio which maintains a large exposure towards the Gulf countries of Saudi Arabia, the UAE, Qatar, and Kuwait. The region is undergoing an exciting economic revolution as its rulers seek to prepare their countries for a global reduction in demand for fossil fuels, using their vast sovereign wealth to invest in education and infrastructure and foster the development of other sectors and industries. Other key themes in the Portfolio include the recovery story in Turkey, which has seen its markets soar in early 2024, and the growth of manufacturing in Eastern Europe as companies “near-shore” operations.

BEMO has delivered a strong year of Performance, with contributions coming from stock picks in Turkey, Saudi Arabia, and among Eastern European banks. Matthias and Adnan aim to offer broad exposure to the varied growth drivers in the region whilst adding alpha through stock selection rather than major macro calls. Performance was also helped by the trust managing to realise value in three of its Russian holdings, which had been written down to zero in the NAV after the imposition of sanctions. The remaining holdings bring major upside potential but no further downside.

BEMO’s shares trade at a 22% discount at the time of writing. Yet there is a performance-related tender offer due at the end of 2025, and the board have said they will consider all options in the interim, raising the possibility of the value in the discount being realised.

The historical yield of 3.1% means the trust offers diversification potential to income investors as well as growth investors.

The trust’s website address is www.bemoplc.com and investors can receive updates directly from the manager by signing up at www.bemoplc.com/preferencecentre.

Analyst's View

After a strong year for developed market equities, thoughts are likely turning to consider where is next. BEMO offers exposure to a number of growth trends which are not directly correlated to US interest rates, developed world inflation, or China’s GDP growth, the key factors driving markets over the past year, and as such we think offers an interesting diversification opportunity. As the West decouples from China economically, many of the countries in the EMEA universe are beneficiaries, including the Eastern European countries which are seeing rising international investment. Meanwhile, Saudi Arabia and the Gulf states are undergoing radical economic reform, a non-cyclical trend which should see investment and economic activity grow in certain areas irrespective of global GDP growth. These are just two of the uncorrelated growth drivers which we think could deliver attractive returns over the medium term.

These countries are not without risk, of course, and political instability in Turkey, the Middle East, and South Africa all have to be borne in mind. However, BEMO’s shares trade at a wide discount of 22% to NAV. On top of this, the team estimate there is a further discount of c. 20% in the declared NAV when considering the Russian holdings, should they become saleable once more. A tender offer in 2025 is one way some of the value could be unlocked in this discount, although it may see the value in the Russian holdings foregone. With the board aware of the small size of the trust and considering its options if the conditions for a tender offer are met, a full continuation vote may end up being on the table too. In our view, BEMO is a highly attractive NAV story with the potential for shareholders to achieve attractive returns if the NAV does well, or even if the NAV does not.

Bull

  • Offers attractive diversification to the typical exposure of a global or global emerging markets trust
  • Has devoted considerable resources to the trust’s under-researched markets
  • Can invest in both fossil fuels and materials with a role to play in the green energy revolution

Bear

  • Political and liquidity risks can be higher in the smaller emerging markets
  • High materials and energy exposure could make the trust vulnerable to a global recession
  • The small size of the trust may deter professional investors
Continue to Portfolio

Fund History

16 May 2024 Fund Analysis
BEMO has had a strong year, and offers multiple layers of value…
20 Sep 2023 Five questions about emerging markets
We track key developments in the diverse emerging markets universe…
06 Apr 2023 Fund Analysis
BEMO aims to provide capital growth and an attractive level of income via investments across emerging Europe, the Middle East and Africa...
15 Sep 2022 Same same but different
We discuss the case for emerging markets at different stages of development…
29 Jul 2022 Fund Analysis
BEMO offers exposure to both sides of the energy transition…
27 Apr 2022 Finding value in a haystack
Non-income value strategies are becoming increasingly scarce, but the holdouts represent attractive near-term opportunities…
25 Mar 2022 Slides and Audio: Barings Emerging EMEA Opportunities
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 16 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
23 Feb 2022 Regime change
Ahead of our spring conference, we ask whether investors need to junk their portfolios and start again…
26 Jan 2022 Fight or flight...
Two of our analysts debate the impact that war in Ukraine could have on investors' portfolios...
22 Dec 2021 No humbug
Our analysts look back at a year of predictions, theories and ideas, and highlight those they think could matter most…
08 Dec 2021 Results analysis: Barings Emerging EMEA Opportunities
BEMO has outperformed its benchmark and the emerging markets index in a barnstorming year for EMEA…
13 Oct 2021 Beyond the Middle Kingdom
As momentum falters in the emerging markets powerhouse, we examine the options for investors outside China...
29 Sep 2021 Fund Analysis
BEMO is a very different way to play the energy transition…
01 Sep 2021 Winter is coming
Summer was a welcome opportunity for exhausted investors to turn their backs on the legion threats they face, but they haven't gone away and the days grow short - we examine four in detail...
25 Aug 2021 Is the UK’s debt a ticking time bomb?
Our analyst argues Rishi is right to worry about government debt and borrowing…
28 May 2021 Results analysis: Barings Emerging EMEA Opportunities
Reporting results for the six months ending 31 March 2021, BEMO outlined the early success of the broadened investment strategy…
10 Mar 2021 Spring Conference '21
Audio and presentations from 21 of the UK’s leading investment trust managers…
04 Mar 2021 Slides and Audio: Barings Emerging EMEA Opportunities
Download the presentation and listen to the audio from our 'Ideas for your ISA' Spring Conference on 02 March...
24 Feb 2021 Fund Analysis
BEMO is Barings Emerging Europe under a widened mandate offering greater alpha and dividend potential…
09 Dec 2020 A bumper harvest?
Agricultural and industrial commodities have rallied strongly, but what are the implications for emerging market allocations...?
13 Aug 2020 Underground bangers
We look for hidden gems in the smaller end of the investment trust universe...
24 Jun 2020 Fund Analysis
BEE’s portfolio’s cheap valuations and strong fundamentals make it a potential recovery play...
18 Jun 2020 Gimme shelter
As income investors brace for impact we ask which regions and trusts are less likely to cut their dividends in 2020…
29 Apr 2020 On solid ground
Our analysis of discounts highlights trusts which are likely to offer significantly less discount downside from the current level…
18 Mar 2020 Their darkest hour?
We update our shortlist of discount opportunities...
16 Jan 2020 Drifting apart: how emerging markets have become less correlated
We examine how correlations between different emerging markets have evolved, and whether single country strategies could diversify returns going forward....
05 Dec 2019 Fund Analysis
BEE invests in strikingly cheap markets and has a strong track record of alpha and dividend generation…
06 Nov 2019 Times are a changin'? The case for a value resurgence
We are in the midst of the longest period of value underperformance since the 1920s. Could we be approaching a change in environment?
14 May 2019 Fund Analysis
Baring Emerging Europe offers a high dividend yield of 4.5% from its unique focus on a cheaply valued region ...
01 May 2019 Sweet or sour?
Three months in, we check up on our list of discount opportunities...
13 Feb 2019 Sweet treats
Eight trusts with the potential for strong returns, currently sitting on unusual discounts...
06 Feb 2019 Income for the long haul
With 'ISA season' looming we identify investment trusts which offer long-term, dependable income streams for yield-hungry investors...
24 Dec 2018 Why did the chicken cross the road?
Because he was so bored of reading newspapers devoted entirely to Brexit he was hoping he’d be hit by a truck.
28 Nov 2018 Every cloud...
The endless grinding negativity of Brexit has driven investors away from Europe in scores, but some managers see rich pickings for those willing to take the risk...
10 Oct 2018 Information overload
Our analysis shows the long term case for emerging markets remains largely unaffected by much of the negative newsflow surrounding the sector...
09 Oct 2018 Fund Analysis
Baring Emerging Europe offers capital growth and a dividend yield from a unique portfolio of stocks in developing Europe...
30 May 2018 Forza Italia!
Recent weeks have seen Italy's rocky relationship with the EU thrust into the spotlight once again, but apart from fresh volatility - how much has really changed?
05 Apr 2018 The search for discounted yield
We scour the investment trust universe for trusts offering chunky yields on a discount...
29 Mar 2018 Fund Analysis
An unusual combination of high-alpha stockpicking, with a portfolio exhibiting strong growth credentials and decent dividend income
30 Nov 2017 Race ready?
We analyse the outlook for emerging markets and, in particular, the genuine active funds that focus on them…
27 Sep 2017 Fund Analysis
A differentiated equity growth offering a combination of capital growth and income generation from stcoks listed in countries such as Russia, Turkey and Poland...
View all

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