Mobius Investment Trust (MMIT) has reduced its cash weighting from 15% in February to near-zero today, eyeing opportunities in Brazil, Turkey and South Africa as it highlighted the portfolio's "hidden value".
Co-manager of the £98m company Carlos Hardenberg told Investment Week it had been active during March and April as it looked to deploy the rest of the capital it raised during its October 2018 IPO.
Technology firms such as Brazil's TOTVS and Turkey's Logo Yazilim Sanayi Ve Ticaret were added alongside Brazilian education provider YDUQS and South African pharmacy Clicks Group.
Hardenberg reinforced Mobius Capital Partners' views that emerging markets (EMs) have structural tailwinds behind them.
Hardenberg said the EM universe had undergone "an enormous wave of repair and adjustment" after March's coronavirus-induced stockmarket shock, as consumers embraced tech and e-commerce.
This "has been a great help for those companies that were better prepared", he added. "Because of the lack of infrastructure, EMs were already advanced in those activities."
Looking ahead, Hardenberg noted purchasing managers' indices across the board had begun to improve. The EM manufacturing PMI, for instance, shot to a nine-year high in August.
Further, the policy response to Covid-19 in EMs has proven faster than developed counterparts, with higher interest rates going into the crisis giving them more room to manoeuvre.
A new fiscal discipline "has enabled [EM economies] to move much faster and swifter into creating that impulse without going too far and reaching a level where international investors would question the sustainability".
This, coupled with an expected period of US dollar weakness, "bodes well for emerging markets", he claimed, adding the asset class continued to be "under-owned".
"That means the demand for risk exposure in EM looks quite positive flows will come back".
Some import-oriented economies such as Brazil and Turkey look vulnerable, but Hardenberg said MMIT's exposure to those two countries remained "very cautious and in very defensive sectors".
Hardenberg said investors needed "strong nerves" and patience with a high-conviction EM portfolio, with markets likely to go against you for long periods. The trust looks for small- and mid-cap positions in the region, targeting 99% active share.
"We did not expect any miracles… we knew we were very much investing against the orthodox mainstream in emerging markets and we knew that was challenging.
"But I believe we have left everybody behind. We see early signs of very strong performance and recovery, so there is a lot of potential and hidden value in the portfolio.
"We remain very confident there is not only a place for what we do and how we do it in EMs, but that it also will result in long-term returns."
MMIT has lost 3.6% from flotation to 7 October, according to FE fundinfo, narrowly our performing its IT Global Emerging Market sector peers' average reverse of 4.6%. However, year-to-date it is up 13.6% compared to peers' average 7.3% loss.