The strategy focuses on smaller and medium-sized companies in global emerging markets.
Analyst coverage of the SMID market in these regions is limited, financial disclosure is less extensive and management teams are less experienced and poorly served by financial advisers. This presents the opportunity to dive deep into financial fundamentals, informed by ESG, to find hidden gems. On average, smaller companies generate more revenue domestically. This makes them better positioned to capitalise on the rising middle class in some emerging markets while simultaneously reducing exposure to deglobalisation. Finally, as Bloomberg data shows, emerging market SMID companies are trading at one standard deviation below the ten-year average on P/E and Price-To-Book.
In our experience, domestic emerging market SMID investors often focus too much on short-term developments and news flow. The long-term nature of the strategy, and its focus on structural growth opportunities instead of transient stock-price movements, enables the team to look through short-term market fluctuations and seek compounding returns that deliver outperformance for investors.