A lot of new funds are launched to take advantage of the hottest investment trends and are primarily aimed at attracting assets under management rather than generating good returns. Common sense suggests that the best way to deliver the biggest gains is to get up and running when an area is out of favour, which is exactly what has happened with the Mobius Investment Trust (LON:MMIT).
MMIT raised gross proceeds of £100 million at its IPO and began trading on 1st October last year. It had been hoping to attract more than twice that amount, but the Emerging Markets have been going through a tough time because of the strong dollar, concerns over China and the slowdown in global economic growth.
Strong management team
Never miss an issue of Master Investor Magazine – sign-up now for free!
The fund benefits from a strong management team that includes Mark Mobius and Carlos Hardenberg, who were both formerly responsible for managing the £2.1 billion Templeton Emerging Markets Investment Trust (LON:TEM). They should be highly motivated as reports suggest that Mobius has invested £15 million of his own money, while Jefferies, the fund’s sponsor, contributed a further £7 million.
MMIT has a completely different remit to anything else in the sector and will invest in 20-30 small to mid-cap companies in the Emerging and Frontier markets with an absolute return focus. The plan is to work with the existing corporate management teams to help unlock the value in the different businesses. This relatively illiquid strategy is well suited to the closed-ended nature of an investment trust.
It is still early days and the stock market volatility has compelled the managers to exercise extreme caution and discipline when deploying the capital. By close of business on December 7th they had invested 40% of the proceeds in 10 companies, with the largest geographies being Poland, China, Brazil, South Korea and Turkey. They expect to be fully invested early this year.
Trading close to NAV
The broker Numis has added the Mobius Investment Trust to their list of recommendations for the year, which is slightly unusual given that it is a new fund that is trading close to NAV, especially as there are more established alternatives that are available on double-digit discounts. Their argument is that the discounts on the likes of Templeton (LON:TEM) and Genesis (LON:GSS) are well entrenched and there would have to be some form of corporate action to result in a significant re-rating.
Mobius has a competitive annual management fee of 1% that is charged on the lower of NAV or market cap up to £500 million and no performance related fee. It also has an effective longer term discount control policy with shareholders being given an option to exit at close to NAV after four years and every three years thereafter.
In view of the difficult market conditions of the last few months it is perhaps not surprising that the fund is trading just below its issue price, but this could be the perfect time for long-term risk tolerant investors to buy. It offers a completely different exposure to anything else in the sector and the experienced management team have a lot of their own money invested so they should be highly motivated to succeed. A full update is expected later this month.