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New Column: Three year track record – RWC Global Emerging Markets

16 May 2019

In her new monthly Investment Research column for Professional Paraplanner, Juliet Schooling Latter, research director, FundCalibre and Chelsea Financial Services, looks at funds that have just passed or are approaching their three-year track record.This issue she looks at the RWC Global Emerging Marketsfund.

It’s not often you look at a fund fact sheet and see the top three geographic bets in a portfolio are Zambia, Russia and Ghana. But that’s the current allocation in this month’s three-year track record: RWC Global Emerging Markets.

Having started trading in January 2016, this fund was launched under quite unique circumstances: the surprise decision of the Swiss national bank to decouple the Swiss Franc from the Euro in January 2015, caused it to rally around 23% almost overnight. Among the plethora of unintended consequences that followed, was the collapse of Everest Capital, a Swiss hedge fund firm, that had short positions in the currency.

RWC Partners was able to take advantage of the highly unusual situation to poach Everest’s 21-strong emerging market equity team, maintaining their process, track record and the support of a large number of their previous investors at the same time. At the end of that same year, RWC launched this fund with a fully formed, stable and proven GEM team.

RWC Global Emerging Markets is differentiated from its peers in that it can – and does – invest up to 20% in frontier markets, it is fully flexible and will invest in companies of any size: hence the very different active bet line up, with 4-5% overweight positions in Zambian, Russian and Ghanaian listed companies.

It is run by John Malloy and a team of highly experienced people from more than 14 countries, talking as many, if not more, languages between them. RWC Partners also maintains a strategic advisory relationship with RiceHadleyGates LLC, to provide ongoing counsel on a broad range of political, policy, risk assessment and commercial and regulatory matters in emerging markets. Among these advisers is none-other than Condoleezza Rice, the former US Secretary of State and National Security Advisor.

John and the team use macro-economic views and detailed individual company research to identify countries, themes and businesses with high return potential.

The whole investment team participates in idea generation, scouring a universe of some 7,000 companies, in more than 60 countries, conducting more than 1,700 company meetings a year and analysing information on a sectoral, country-specific and thematic level. This final part – themes – is an important part of how they prioritise their research effort and find actionable ideas.   In particular they are looking to identify things like a cycle of innovation and adoption or a secular trend: anything from electric vehicles to a country’s evolving demographics.

An ongoing thematic example is technology disruption. The team are looking for companies that are disrupting the way an industry works, creating a new business model or where the technology is changing so dramatically that the number of companies able to compete in this area shrinks to an effective oligopoly.

E-commerce is part of this theme, but in emerging markets much of that experience is actually leap-frogging the desktop computer and moving straight to smartphones. One such example is Samsung Electronics. The team believes that the company will continue to benefit from the increasing penetration of smartphones, data-centres and artificially intelligent devices.

Another example is Ctrip.com, a top ten holding. A beneficiary of China’s growing tourism culture, its total customer base has reached 200 million monthly average users with over half its user base under the age of 30. It recently reported better-than-expected earnings and rallied almost 30%.

It’s an aggressively run fund and doesn’t take any prisoners. It is highly geared to the global economy and does very well when emerging markets do well, but will suffer more when they fall too: at the end of last year, when fears about a global slowdown caused markets to fall, the fund fell heavily, ending the year down more than 22%* – almost double the falls of the peer group (-11.78%).  Despite that, it is still top quartile over its lifetime, returning 92.94%** compared with 69.94%** for the IA Global Emerging Markets sector.

So, it’s not for everyone and investors have to be able to stomach the lows as well as the highs. But emerging markets are due a period of good performance relative to developed markets. When they do take off, this is the fund to be in.

*Source: FE Analytics, total returns in sterling, calendar year 2018.

**Source: FE Analytics, total returns in sterling, 28 January 2016 to 26 April 2019.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice. 

Professional Paraplanner