Polar Capital is set to launch the fourth fund for its emerging markets (EMs) team this January, an open-ended fund specialising in Asian equities, as it details its emerging market investment strategy.
The Asia Stars fund will launch at the start of next year subject to central bank approval, joining the Emerging Market Stars, China Stars and the Cayman-domiciled long/short China Mercury funds, which were all launched this year.
The strategy is managed by Jorry Nøddekær and his team who joined Polar Capital this June from Nordea.
Nøddekær said, while Asia was a large weighting of the EM Stars fund (at 79%), there would be a ten to 12-stock difference between the two funds as the EM fund includes areas such as Russia and Brazil.
The Asia Stars fund will also allow the team the opportunity to continue to access countries such as Korea and Taiwan should they be upgraded from emerging to developed market status in the future.
He also explained the 'Stars' name comes from the firm's investment process which considers six issues; material ESG issues, industry key success factors, business ethics, pockets of growth, economic value added (EVA) valuation and impact to progress.
ESG is a key part of the investment process across the whole EM range and Nøddekær said its integration into portfolio management was a key reason behind why the team joined Polar Capital.
"We were early movers into ESG at Nordea and now we try to take a holistic view and look broadly on factors such as how sustainable are companies' business models and how can they stay competitive?
"There is a lot of focus on sustainability variables in our process and how that can affect performance, this gives investors a clear conscience and they can sleep at night.
"The ESG tilt is more integrated in the management process here, it is not a separate ESG team."
Unlike developed markets, it is harder to measure ESG credentials in EMs as companies can be less transparent and willing to engage with shareholders, he said.
"It is a lot harder in EMs, there is limited coverage especially in small- and mid-cap stocks. Some companies such as Samsung are very good whereas others are not so engaging."
However, after a difficult summer that saw volatility and currency crises in Turkey and Argentina shortly after the July launch of the EM Stars fund, Nøddekær admits it was a "tricky time" to be launching an EM range.
As a result of the difficulties, which has led the MSCI EM index to fall 17% since the start of the year, Nøddekær has a high weighting to Asia and low exposure to regions such as Latin America.
"There is more volatility now and this could lead to drawdown periods. This means investors will need to be more patient, we have a style tilt on growth and quality and are confident in that style, but when there is a risk-off period we may underperform.
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