Mobius Investment Trust 23 June 2022
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.
To deliver long-term absolute returns by investing in emerging and frontier-market equities.
Mobius Investment Trust
Mobius Capital Partners
Carlos von Hardenberg, Grzegorz Konieczny, Mark J. Mobius
Association of Investment Companies (AIC) Sector
Global Emerging Markets
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Mobius Investment Trust (MMIT) invests in small and mid-cap companies across the emerging and frontier-market universes, aiming to generate long-term capital growth and income returns 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 is heavily weighted towards technology, Taiwan and India, and the managers are 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 very well since it launched, as we discuss in Performance. This is owed to a strong post-pandemic recovery in small and mid-cap emerging market stocks as well as the trusts large exposure to India.
MMIT is an interesting, differentiated proposition which we think 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 large exposure to India and underweight to China is untypical, the positioning in technology is more of a consensus. 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.
The exposure to growth companies has overall been beneficial since the launch, but hurt in recent months. If the inflationary environment and rising interest rate scenario persists, then we think value investing may continue to gain traction at the expense of the type of companies in MMIT.
We believe MMIT’s performance, the manager’s profile and differentiated proposition are contributory factors to the trusts narrower discount to its peers. It has on occasions over the last year also traded at a premium which in turn has given the board the chance to grow the trust through share issuance.
- Emerging-market smaller companies have generated returns of over 10% a year in recent decades
- Engagement strategy offers ability to add value and encourage positive change
- Offers access to smaller companies and smaller countries which are often not held by mainstream funds
- May be too small for professional investors
- Tendency to hold cash could hold back returns if it persists
- Concentrated sector, country and single stock holdings increase the risks in these positions