In his first detailed update on the £95m Mobius Investment Trust, which launched on 1 October, Mark Mobius has revealed more than half of the trust is now invested, with 15 names across ten emerging market countries.
Mobius said he has exercised caution and discipline in allocating capital in the trust, due to 2018 being "a year to forget for emerging and frontier markets".
Despite thinking of 2018 "fondly" as the year Mobius Capital Partners was established, the period was characterised by elevated volatility and political uncertainty while investors were "stalked by the threat of trade barriers and protectionism, with the backdrop of a strengthening dollar, tighter monetary conditions, and weaker commodity prices".
Indeed, the trust - which launched at the start of the tumultous fourth quarter - is down 3.4% since launch to 21 January, versus an average rise of 0.5% in the AIC Global Emerging Markets sector, according to FE. Both the MSCI Emerging Markets and Frontier Markets indices also outperformed the trust, though only marginally.
However, Mobius is excited about the companies in which the trust is now invested, including South Korean biopharma company Hugel which is currently the largest holding, representing 5% of the portfolio.
He said: "Hugel is well placed to benefit from international demand given strong international partners (China, Europe & US) and under-utilised plant capacity in South Korea."
The team saw the stock as a value opportunity, as negative sentiment around its exports at the time of investment meant shares were trading at a deep discount to competitors and their trading history.
Similarly, the team saw Polish fast-moving consumer goods wholesaler Eurocash as undervalued at the time of investment. The company, which is the fourth largest name in the portfolio, with a weighting of 4.6%, was negatively impacted by previous M&A integration and a deflationary environment, making it an attractive opportunity.
Looking ahead, Mobius said the team believes emerging and frontier markets have now priced in a lot of concerns and that the valuation differential between EMs and developed markets are near an all-time high, making the former "very attractive from a valuation standpoint".
He added: "We believe the universe of smaller companies offers a particularly attractive opportunity over the coming years. These companies are more agile, often growing their international market share in their niches, more flexible in responding to a fast-changing environment, less owned and less well understood by the market.
"Importantly these businesses are often led by founders with a determined entrepreneurial spirit, driven to succeed. As a newly established firm ourselves, this is something we can relate to at Mobius Capital Partners."
Commenting on the most recent update, Numis' associate director of investment companies research Sam Murphy said the trust has an "effective longer-term discount control mechanism and a differentiated approach and that the management is highly motivated to succeed".
The team added the trust to its Recommended List this month despite trading at close to NAV, at a discount of 1.1% when rival trusts are trading on double-digit discounts.
He added: "However, we believe the discounts of the major Global EM investment companies such as Templeton EM and Genesis EM are entrenched due to the nature of their share registers, and we believe a significant rerating would probably require some form of corporate action."