Mobius scans far horizons as China shunned

LONGSTANDING emerging markets fund manager Carlos Hardenberg says he is facing strong headwinds. But he passionately believes the opportunity to generate longterm returns for shareholders is just over the horizon. ‘I have to be optimistic,’ he said last week as he travelled across the Middle East, meeting businesses in Turkey, Dubai and Abu Dhabi.

Hardenberg is the engine behind investment trust Mobius, a £131million stock market-listed fund which invests in a concentrated number of companies with big business interests in developing markets. Despite a tough last year, the trust has fared satisfactorily since launch in October 2018, generating a return of just over 20 per cent.

The headwinds are familiar – raging inflation and a world economy teetering on the verge of recession. The strong dollar has also caused investors to hunt down US assets, resulting in big outflows from emerging markets.

‘Emerging markets are unpopular,’ says Hardenberg.

‘We are living through a period of elevated fear fuelled by the war in Ukraine.

‘Investor confidence in emerging markets is low and its feels like a full bear market.’ But, reassuringly, the fund manager is encouraged by what he is hearing from company bosses. ‘Although Turkey is suffering from inflation in excess of 80 per cent and its economy is in poor health,’ he says, ‘the same cannot be said of countries such as India and Vietnam. They are in pole position to benefit from the shift in world manufacturing away from China.’

Among the trust’s top holdings are Indian companies Apollo Tubes (a manufacturer of steel tubes) and software specialist Persistent Systems – and Vietnam Dairy Products.

‘I believe that in the next four years, we will see a massive rerating in the shares of the 24 investments we hold,’ says Hardenberg confidently. ‘Also, our emphasis on high tech companies in the semi-conductor space will reap rewards.’ Taiwanese companies make up nearly a quarter of the trust’s portfolio.

Hardenberg refuses to hold companies listed in Russia or Argentina. He has also reduced the trust’s exposure to China, selling positions in medical instrument manufacturer AK Medical and restaurant company Yum.

‘China’s long-term economic outlook is not as rosy as it was,’ he explains. ‘Greater regulatory scrutiny by the Chinese authorities has also created a difficult environment.’ Although Hardenberg has concerns about China’s fractious relationship with Taiwan, he does not believe there will be a sudden military conflict. ‘China wants stability’, he argues. ‘It needs its economy to start growing again and attract international capital.’

Although Taiwan is the trust’s biggest country stake, many of the Taiwanese companies it holds have production facilities all over the world. Next month, the trust will allow shareholders to exit at a price reflecting the value of the fund’s assets. But with the shares standing at close to asset value, Hardenberg is confident that few will take up the offer. Indeed, he believes the trust may be in a position to issue new shares as other investment fund managers such as Fundsmith liquidate their emerging markets funds as a result of poor performance.

The trust has no borrowings, a 10 per cent slug in cash, and its annual management charges total 1.55 per cent. Its stock market identification code is BFZ7R98 and the market ticker Is MMIT. It pays a small annual dividend – 0.35 pence a share in its last financial year – and its shares are trading at £1.23.