Benchmark freedom and EM investing

Added 13th May 2015

Benchmark freedom and EM investing

If the manager is freed from the benchmark, emerging markets offer many opportunities from a stock-pickers perspective, particularly if headlines are negative, according to Ross Teverson, head of strategy for global emerging markets at Jupiter Asset Management.

Teverson manages the Jupiter Global Emerging Markets Unconstrained SICAV fund, which launched in March 2015.

Seven people are on the investment team, which does bottom-up analysis from a stock pickers' perspective. 

The fund is differentiated from other EM products because it is "genuinely benchmark-agnostic", he told Fund Selector Asia

The benchmark has no bearing over how his team builds a portfolio, and the active share measure of the fund - the percentage of stock holdings that differ from the benchmark index - is close to 90%, he added.

A benchmark-agnostic approach also brings the flexibility to be zero weighted in markets that don't offer compelling opportunities. 

"Contrast that to benchmark-aware funds. Stocks may be held not because the manager has a particularly strong view on them, but because they provide some exposure to these markets in the index."

Stock-specific drivers

Weighting in financial stocks in the fund is significantly lower compared to the benchmark and to other EM managers, while consumer sector weighting is significantly higher, he said. 

In absolute terms, weighting in those sectors is similar at around 20-22% of the fund.

"In the financial sector, often macroeconomic factors are the biggest driver of stock returns but I'm looking to add value at the business level." 

By comparison, in the consumer space, management decisions are more likely to improve the stock price. "Stock-specific drivers are much more powerful than macro factors."

Oil agnostic

The largest geographic allocations are to China and India, Exposure to both markets exceeds that of the benchmark and peer group, he said.

In China, Teverson likes the healthcare and ecommerce sectors. The fund is not invested through the Stock Connect, however, because A-shares have been overpriced, he said.

In India, the team believes Prime Minister Narendra Modi's reform agenda will lead to increased investment and domestic consumption.

Elsewhere in emerging markets, the fund has been increasing exposure to Russia and Brazil despite the collapse in oil prices for those oil-producing markets.

Teverson explained that he does not start with view on macroeconomics or commodity prices and invest accordingly. 

"The market preoccupation with macroeconomic headlines creates opportunities from mispricing. Excessive pessimism from investors on Russia and Brazil has allowed us to pick up individual businesses at very compelling valuations. "

In Russia, the fund owns, which is involved in social networking and online gaming. He believes the company has growth prospects similar to China's Tencent, and the fund has been able to buy it at a low valuation because of negativity toward Russia.

In Brazil, the Petrobras scandal has negatively impacted on midcap companies, and the weak currency and generally negative sentiment about the debt market have created a buying opportunity. 

"We bought some quality companies at the lowest valuations in a decade. That's more important than the top down view of whether we should be investing in oil producing or consuming countries."

Tuning out noise

Teverson was lured over to Jupiter in 2014 from Standard Life Investments in Hong Kong, where managed the Global Emerging Market Equity Unconstrained SICAV. 

According to analysis from FE, the fund "significantly outperformed the index under his management".

A look at his perfromance vs his peer group composite:


The Jupiter fund is managed out of the UK. After about six years at SLI in Hong Kong, Teverson said he found no benefit to being physically located on-the-ground in an Asian market. 

"The disadvantage is there's a huge amount of day-to-day noise and we're on a one-two year or longer time horizon. The real important factors in our investment decisions don't come and go with daily news flow but from ongoing conversations with the companies we speak to."

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