THE INTERVIEW
Taking advantage of emerging market opportunities created by market inefficiency and investor short-termism
Ross Teverson,
Fund Manager, Jupiter Global
Emerging Markets Fund
Risk profiling
Emerging and frontier market drivers have evolved significantly over the past decade and the region today offers one of the broadest mix of investable companies globally, in sectors as diverse as technology, healthcare, and consumer staples.
It is within this wide universe of stocks that Ross Teverson, Head of Strategy, Emerging Markets at Jupiter Asset Management, looks to identify ‘underappreciated change’ that has not been fully priced in by the market, in order to generate long-term returns in the Jupiter Global Emerging Markets Fund.
According to Teverson, the idea of ‘underappreciated change’ is particularly prevalent in emerging markets as a result of the fact many companies remain under-researched and investors often invest in emerging and frontier geographies based on short-term considerations.
“I have been investing in emerging markets for 18 years and I have always looked for positive change in companies. It is an approach that works well over long periods and through different market environments because at any point in time, we are able to find examples of companies experiencing positive change that the market has not appreciated,” explains Teverson.
“However, investors do not always approach emerging markets with a long-term focus, instead looking at the investment case from a short term or a historical perspective.”
Teverson’s ‘change-based’ investment philosophy, as it is known, aims to analyse the underlying fundamentals of a company in order to identify long-term and positive, material changes that are not reflected in market valuations. He also looks at structural changes at a company level.
The strategy has resulted in the Jupiter Global Emerging Markets Fund outperforming both the MSCI Emerging Markets Index and the IA Global Emerging Markets wider peer group significantly since inception; the fund has returned 69% over three years versus a peer group total return of 47%**.
Unlike the MSCI Emerging Markets Index, the fund is unconstrained which can be seen in its multi-cap approach and high active share of around 93%. While the index devotes 75% of its portfolio to large caps, the fund has larger weightings in mid-sized and smaller companies, where Teverson notes there is a “stronger alignment of management and minority shareholders and higher degrees of private ownership”.
He explains: “Our multi-cap approach is an important differentiator of the emerging market exposure we offer in this fund. Unconstrained for us is complete benchmark agnosticism. We choose to look at a broader universe of stocks than the MSCI Emerging Markets Index–around 4,000 in total across emerging markets and frontier markets as well. Each individual stock opportunity is assessed by the team on a case-by-case basis.”
Though a screening process ranks stocks in the universe and assists in identifying those companies where there is potential for improvement, one of the most important parts of the fund’s investment research process is Teverson and his team’s detailed ‘on-the-ground’ analysis.
“The portfolio is built from the bottom up and the team, which consists of eight managers and analysts, looks to add 100% of the value via stock selection. We conduct around 1,000 meetings and conference calls between eight of us every year, and a lot of our work is travelling to meet with the management of these companies and identify opportunities first hand,” says Teverson.
“We run a concentrated portfolio of between 45-50 high conviction stocks but because of the broad geographical and industry scope of where we invest, we are also able to diversify the portfolio at a stock level which helps offset risk.”
Teverson notes the benefits of applying a bottom-up and focused view to stock selection means the team is not as preoccupied with wider macro and political issues in the same way as other investors in emerging and frontier markets.
“While politics are very interesting to talk about, the likelihood of us adding value because of it is close to zero and it is very difficult for us to pre-empt what is going to change in the political landscape of any given country we invest in,” says Teverson.
“But, when markets are overly preoccupied with the macro it creates some of the best long-term opportunities that underline our strategy. This was seen in the Mexican stockmarket following the election of President Trump in 2016. Though the market sold off, we ignored the headlines and travelled to Mexico to meet with a number of companies and found businesses valued at levels that did not reflect the fact they were benefiting from ongoing positive long-term changes.”
“There will always be periods when investors are dismissive of countries or regions as a whole. Yet we find those periods to be the best time to identify individual company opportunities that have been overlooked.”
Frontier exposure
Implementing diversification
Fund strategy
Performance
Source: Average research reports per month.
Mark Mobius, Passport to Profits.
Source: Bloomberg over two years (2015-2016). BRICs is a composite of MSCI country indices for Brazil, Russia, India and China. All remaining data points are standalone.
Source: Jupiter/Morningstar Direct, data is holdings based, latest available on 31.08.17.*Custom Peer Group Average made up of top five largest funds by AUM within peer group.
Source: Jupiter 31.08.17. Large: >$10bn, Mid: $2bn–$10bn, Small: <$2.0bn.
Source: FE. Jupiter Global Emerging Markets Fund I ACC; bid-bid, net income reinvested. Total returns in GBP over three years to 19.10.17.
FUND SNAPSHOT
Jupiter Global Emerging
Markets Fund
Unconstrained and benchmark agnostic, the team can invest up to 20% of the fund in frontier markets.
There are three benefits to having this exposure within this fund, according to Teverson: “The structural opportunities in some frontier markets are compelling because there is not only lower penetration of products, but the countries are experiencing a demographic tailwind that no longer exists for many of the more mature emerging markets.”
Additionally, the region offers higher alpha potential as companies are less well researched. For example, there are only 100 research reports written on Nigerian companies each month compared to 30,000 (on average) on American companies.
Finally, frontier markets have a low correlation with the broader emerging markets universe, which means the right exposure to a stock in a frontier country could be a good diversifier of risk in the fund.
Ross Teverson and his team aim to avoid traditional approaches that can often follow the herd when investing in emerging markets.
Instead, the Jupiter Global Emerging Markets Fund offers a truly differentiated position that captures the breadth of economies as they emerge.
The make-up of the fund is diversified at a stock level and differs substantially from both the benchmark and the peer group. For example, while both the benchmark and peer group maintain large allocations to markets such as Hong Kong and China, the fund’s weighting here is much less. Overall, half of the companies the fund is invested in are not represented in the benchmark MSCI Emerging Markets Index.
The Jupiter Global Emerging Markets Fund offers investors an opportunity to invest across emerging and frontier markets via an unconstrained and benchmark-agnostic approach.
The first step to identifying potential stocks for inclusion in the portfolio involves screening the universe to identify those companies trading more than $1m per day. The team then applies a proprietary quantitative change monitor which highlights stocks where valuations remain cheap but are, or could in the future be experiencing positive change.
From this list, the team conducts approximately 1,000 company meetings annually to analyse the change, stock price, and any catalysts that will lead to said change being reflected in the price. This strategy has helped the team to deliver a total return of 69.3% over three years, ahead of the wider IA Global Emerging Markets peer group average.
Jupiter Emerging Markets
Meet the team:
Not pictured:
Colin Croft
Fund Manager
Emerging Europe Strategies
11 years’ experience
Amelie Thevenet
Assistant Fund Manager Global Emerging Markets
10 years’ experience
Matthew Pigott
Analyst
4 years’ experience
Left to right:
Ross Teverson
Head of Strategy Global Emerging Markets
18 years’ experience
Avinash Vazirani
Fund Manager
India Strategies
23 years’ experience
Aimee Truesdale
Analyst
5 years’ experience
Ben Surtees
Fund Manager
Asia Strategy
15 years’ experience
Charles Sunnucks
Assistant Fund Manager
Global Emerging Markets
7 years’ experience
Common language
EM expertise
Ross Teverson, Head of Strategy, Emerging Markets at Jupiter Asset Management, leads a team of eight fund managers and analysts that work together to select stocks for inclusion in the Jupiter Global Emerging Markets Fund.
This team is essential to implementing the fund’s ‘change-based’ investment philosophy, which aims to identify stocks that are experiencing positive change that has not been fully priced in by the market.
“Jupiter’s philosophy very much focuses on hiring individuals that have high conviction in their own investment approach,” explains Teverson. “In this team, there are eight managers and analysts that conduct around 1,000 company meetings and conference calls across emerging and frontier markets each year. We would much rather go to a country, visit companies on their own turf and observe their facilities and/or offices to gain a strong feel for how the company operates.
“Eight of us travelling frequently allows us to meet the management and understand their business in greater detail. Over the course of the past year I have been to Kenya, Nigeria, Malaysia, China, Taiwan and Mexico–and I am one member of the team.”
The team is made up of a mixture of fund managers and analysts, each with individual regional capabilities that assist them in the research process. For example, fund manager Avinash Vazirani has a long-term track record of managing the Jupiter India Fund and Jupiter India Select Fund (SICAV) while Colin Croft also runs the Jupiter Emerging European Opportunities Fund.
“Avinash and Colin are very much experts in their respective areas and are also fluent in the languages spoken in those markets. Assistant fund manager, Charlie Sunnucks, meanwhile studied economics at university in Beijing in mandarin, which allows us to conduct additional research around potential investments in the China market.”
This expertise is complemented by the team’s individual sector expertise, which Teverson believes improves the level of rigour when meeting companies, as well as informs the debate between the fund managers. Teverson himself specialises in technology and telecoms.
While the fund’s strategy emphasises company contact, the team is also committed to meeting twice a week to present and discuss new ideas for peer review in the form of proprietary stock notes. This is essential to ensuring all of the managers and analysts are speaking a common investment language, says Teverson.
“For any stock we discuss, we aim to firstly identify the change and make sure it is material to the stock’s long-term outlook. Secondly we look at valuation; what is currently priced in to evidence and argue that change. Thirdly, the team looks at catalysts or events that could draw the market’s attention to what is changing.”
However, the analysis does not stop there. The team also meets with a number of external businesses wherever possible in order to corroborate the outlook a company’s management team has provided.
Teverson says: “Direct company contact is the best lens through which to view change. But we are also aware management will talk up their own book and therefore if we can, we will corroborate the investment thesis.”
“For example, the management of BizLink, which supplies components to Tesla, has had a very positive view on the outlook for two years and the stock has performed well throughout this period. But, before we bought into the stock, we spoke with Tesla about their relationship with suppliers in general to understand whether it was keen to introduce second sourcing or whether it was willing to have component suppliers that are a sole source as the case is today.”
“We also spoke to companies that are in competition with BizLink and trying to
break into the electric vehicle components supply chain. These meetings gave us additional confidence that the changes we had identified within BizLink were taking place and would be a positive driver of the company’s share price.”
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Important information
For Investment Professionals Only. Not for use by Retail Investors.
This document is for informational purposes only and is not investment advice. Past performance is no guide to the future. Ross Teverson has been managing the fund since 01.01.15. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. The views expressed are those of the Fund Manager at the time of writing and are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Stock examples are for illustrative purposes only and are not a recommendation to buy or sell. The fund invests in emerging markets which carry increased volatility and liquidity risks. The fund invests in smaller companies, which can be less liquid than investments in larger companies and can have fewer resources than larger companies to cope with unexpected adverse events. As such price fluctuations may have a greater impact on the fund. This fund invests mainly in shares and it is likely to experience fluctuations in price which are larger than funds that invest only in bonds and/or cash. The Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. Jupiter Unit Trust Managers Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority.
