No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. RWC Partners Limited is authorised and regulated by the Financial Conduct Authority.
Asset class
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Process
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Differentiator
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Team
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Track record
Presenting the TM Redwheel Global Emerging Markets Fund
FOR PROFESSIONAL INVESTORS ONLY
In April this year, Redwheel expanded its Oeic offering by launching a UK-domiciled version of its $2bn (£1.4bn) Global Emerging Markets strategy.
We look at the portfolio from five angles to see what makes it different to its peers and why investors should be looking at emerging markets.
John Malloy, manager of the TM Redwheel Global Emerging Markets Fund, gives a snapshot of the five key attributes of the fund.
AUM
£324M
Fund size
NEXT
One area that Malloy says is seeing a huge wave of investment in the region is the addressing of climate change; namely any companies that are benefiting from the investment in renewables, such as solar companies.
“It is an interesting time to be investing in emerging markets and we are very positive on the outlook for the region,” Malloy says.
“The market has forgotten about the 500 million people that live in Latin America,” he says. “Considering the long-term opportunities, we are positive about the structural developments in regions outside of China and believe these should not be overlooked by investors.”
Unprecedentedly low interest rates, global technology disruption and a strong commodity backdrop will all potentially benefit the growth opportunities in emerging markets, says Malloy.
With much investor focus on China and south-east Asia, Malloy adds it is easy to forget about the other growth opportunities in the region.
No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment.
Managed by John Malloy, the TM Redwheel Global Emerging Markets Fund seeks to uncover medium to long-term growth opportunities and valuation inefficiencies in emerging and frontier markets.
Unearthing the hidden gems
Malloy adds that the strategy follows an idea-focused, rather than index-driven, approach to investing. This means they pursue multi-year, long-term growth drivers in the region. One example is travel. While Covid has caused travel in emerging markets to hit a bump in the road, he says it is a theme that could be around for years to come and is one the fund is looking to take advantage of.
The team's investment philosophy focuses on opportunities with ‘growth at a reasonable price’ (Garp) characteristics.
“We very much believe macro matters,” says Malloy. “In addition to this, we are looking for thematic growth opportunities and 70% of our alpha is driven by stock selection. So our stock ideas are a combination of both our top-down macro and Garp thematic approaches.”
The fund invests in
holdings
50-70
Stock selection drives
70%
of alpha
Source: BlackRock 31 August 2021
Malloy says one of the differentiators of the fund is its adoption of an absolute return mentality. Having worked as a hedge fund manager for 18 years, he says the focus is very much on investing in the strongest ideas.
Fund dividend yield
*Dividend yield based on trailing 12 month distribution divided by the latest NAV. Source: RWC, FactSet (using GICS Sector Classifications via MSCI). All data as at 30th April 2021.
2.0
vs.
INDEX
*
“We are index-aware, not index-agnostic,” he says. “But our approach is very much on achieving a differentiated total return.”
With an active share of about 85%, he says the fund’s top 10 holdings will look very different to other funds in the IA Global Emerging Markets sector. For example, it doesn’t hold Alibaba or Tencent.
“Understanding governance, environmental and social risks is something you cannot ignore as an investor and is something we have been doing since the start of this strategy almost a decade ago,” he says.
ESG analysis also forms a fundamental and integral part of the team’s due diligence process. The ESG team is led by Marina Bulyguina, who works closely with the analysts in engaging with management teams. ESG is and always has been fundamental to the team.
The team is one of the biggest, deepest and most diverse in global emerging markets, with a focus on quality over quantity.
Malloy – who has close to 30 years’ experience investing in emerging markets – is lead portfolio manager. He is supported by Thomas Allraum, co-portfolio manager, and 19 analysts.
Each analyst has regional coverage, many of who are native to the markets they research. In addition, each analyst is the point person for a specific sector or industry. Malloy says this process encourages collaboration among analysts covering different regions, fostering an environment that promotes idea generation and debate over existing investments.
Malloy has close to
EM investment experience
30 YRS
Supported by
analysts
“Given their experience, I very much rely on the global team’s ideas and recommendations,” Malloy says. “I also work closely with James Johnstone, who runs the Redwheel Frontier and Next Generation strategies to make sure we are getting the best ideas in this fund.”
Supported by co-manager and
19
Past performance is not a reliable indicator of future results.
Source: Federated Hermes as at June 2020. Performance presented in Euros for the F EUR Acc share class, net of fees and charges. Fund inception: 11 May 2010. Benchmark: ICE BofA Merrill Lynch Global High Yield Constrained EUR Hedged.
While the open-ended fund launched in April 2021, the Emerging Markets strategy itself was established in August 2012, prior to the team joining Redwheel in May 2015.
With the fund’s absolute return approach, the team are able to explore the opportunity set beyond the obvious big names in the MSCI Emerging Markets Index (such as Alibaba) and look for the best opportunities with highest return.
IMPORTANT INFORMATION
Portfolio trades at
earnings*
15X
Long-term growth rate
Range*
MID-20%
HOME
“The portfolio trades at about 15 times earnings, which is pretty reasonable given that the long-term growth rate of our companies is in the mid-20% range,” he says. “This is not just more attractive than developed markets, but also more attractive than the overall MSCI Emerging Markets Index.”*
The information shown above is for illustrative purposes only and is not intended to be, and should not be interpreted as, recommendations or advice. No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested.
*Source: Redwheel, as at October 2021.
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RISK WARNINGS
