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Disclosure – Independent Investment Research

This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.

Overview
MMIT is at the leading edge of ESG investing…
Overview

Mobius Investment Trust (MMIT) invests in small and mid-cap companies across the emerging and frontier-market universes, aiming to generate total returns of 12-15% over the long run from a highly concentrated portfolio of 20 to 30 stocks.

The trust is managed by 30-year veteran manager Mark Mobius as well as his former colleague and successor on the Templeton Emerging Markets Investment Trust, Carlos Hardenberg. The managers have a bias towards quality growth stocks which they aim to buy when they are trading on a discount to their intrinsic value and then hold for the long term. The current portfolio is highly differentiated from the average global emerging market fund and from the mainstream indexes, as we discuss under Portfolio. The trust has significant overweights to technology and to India, and is willing to hold nothing in sectors or countries if the conviction isn’t there.

Carlos and Mark describe their strategy as a ‘private equity’ method of investing. This consists of buying undervalued companies and engaging with management to unlock the value. As well as more traditional operational improvements, the trust encourages improvements in the ESG performance of portfolio companies, believing that this is not only good in itself, but also accretive to shareholder returns (as we discuss in ESG). The managers place great emphasis on engagement, and have expanded the ESG framework to include a rigorous assessment of the culture of a company.

MMIT has performed extremely strongly in 2021, as we discuss in Performance. This has been helped by a rally in the small and mid-caps in emerging markets as well as the trust’s major overweight in India. Consequently, the shares trade on a 2% premium to NAV.

Analyst's View

MMIT is an interesting, differentiated proposition which could be used to access the growth potential in emerging market small caps or to diversify some of the biases of the typical emerging markets fund. As well as offering access to small caps, MMIT tends to have significant country or sector biases. While the overweight to India and underweight to China is untypical, the positioning in technology is more of a consensus. While the managers argue that small caps are less likely to fall foul of the sort of regulatory interference we are seeing in Chinese large cap tech, there has to be the risk of the trust’s holdings being pulled into sector wide issues if they have relationships as suppliers or clients of the larger tech companies. It is also worth noting the high exposure to growth companies. Were we to see a sustained rally in value – for example in an inflationary environment in which interest rates were raised by the Fed and across the EM region – this might present a headwind to the trust’s relative returns.

MMIT’s recent success has led to a premium opening up, which in turn has given the board the chance to grow the trust through share issuance. If this can be sustained, this should continue to decrease the fee burden. It could also present an opportunity to diversify the shareholder base which is currently quite concentrated with two major shareholders (see Discount).

bull bear
Emerging-market smaller companies have generated returns of over 10% a year in recent decades
Small size of the portfolio could lead to questions over longevity in the long run if it doesn’t grow
Engagement strategy offers ability to add value and encourage positive change
Tendency to hold cash could hold back returns if it persists
Offers access to smaller companies and smaller countries which are often not held by mainstream funds
Concentrated sector, country and single stock holdings increase the risks in these positions
Continue to Portfolio

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