Mobius Investment Trust PLC
Active Ownership in Emerging and Frontier Markets
Mobius Investment Trust plc’s objective is to deliver
long-term absolute returns by investing in emerging and
frontier market equities. MMIT will identify companies with resilient business models which are undervalued and mispriced. MMIT does not use any benchmark and follows an active investment style by partnering with portfolio companies.
This is achieved by engaging with stakeholders to improve corporate governance, set out a broader ESG pathway and
act as a catalyst for wider operational and financial improvements.
The Net Asset Value (NAV) of the Mobius Investment Trust (MMIT) decreased by 2.6% in October 2019, closing at 89.95p. The share price decreased by 0.8% over the same period, with MMIT trading at a 4.9% discount on 31 October. Over the course of the month, there was an average discount to NAV of 6.5%. As of 31 October 2019, MMIT allocated 83.3% of capital, with 20 holdings across 9 countries. The higher than normal cash position (16.7%), is the result of three recent disposals (as outlined in our Q3 2019 Manager Commentary) and the rebalancing of several positions that have performed strongly in the last month. We expect the level of cash to be reduced significantly in the coming weeks, with the initiation of one new position (we will provide further details once it reaches the target weight) and a further five stocks currently at the Investment Committee stage. Over October 2019, the top three largest contributors to performance were Polycab India (+0.7%), AK Medical (+0.7%) and Eurocash (+0.2%). Grupo Lala (-1.1%), Yum China (-0.6%) and Cogna Educacao (previously called Kroton Educacional SA) (-0.5%) were the worst performers.
We built our position in Polycab through July having been attracted to both the Pillar 1 and Pillar 2 opportunities ahead. Polycab is one of India’s leading electrical brands with revenues over $1bn. Its sustainable competitive position is shaped by its pan Indian distribution, scale, supply chain efficiency, product innovation and improving brand equity. The re-rating story will be driven by the company’s success in growing its fast-moving electrical goods business which carries superior economics. Our engagement focusses on cash release through improved working capital, senior management incentivisation and improving the investor relations function. Our engagement work has yielded tangible results already. Through the course of the quarter, the company released strong numbers which saw an acceleration in both revenue and earnings growth on a quarterly basis which drove return on capital employed higher by 222bps to 26.3%.
As previously highlighted, in accordance with the discount management policy, MMIT’s Board has been notified that the monthly average discount widened beyond 5.0% in September 2019. Before formalising next steps, the investment manager has been instructed by the Board to undertake a consultation with the existing investor base given some concerns that a buyback would lead to a reduction in liquidity and be counterproductive. To date, feedback has unanimously supported this view and indicated a preference for narrowing the discount through generating natural demand.
MMIT pursues an active management style. Its performance may therefore deviate considerably from that of a comparable market return
Pronounced fluctuations in price are characteristic of emerging and frontier economies. Other characteristics include specific risks such as lower market transparency, regulatory hurdles, illiquidity of markets as well as political and social challenges
Investments via Shanghai or Shenzhen Stock Connect are subject to additional risks, quota limitations, custody risk, clearing/settlement risk and counterparty risk
Focusing intentionally on stocks in small and medium cap companies may entail additional risks (e.g. lower liquidity).
Risk Warnings: This document is issued by Mobius Investment Trust plc for information purposes only and does not constitute an offer or invitation to purchase shares in the Company and has not been prepared in connection with any such offer or invitation. Nothing in this document should be construed as investment advice or a recommendation to buy or sell shares. Before investing in the Company, or any other investment product, you should satisfy yourself as to its suitability and the risks involved, and you may wish to consult a financial adviser. Any return you receive depends on future market performance and is uncertain. Past performance cannot be relied on as a guide to future performance. The Company does not seek any protection from future market performance, so you could lose some or all your investment. Shares of the Company are bought and sold on the London Stock Exchange (LSE). The price you pay or receive, like other listed shares, is determined by supply and demand and may be at a discount or premium to the underlying net asset value of the Company. Usually, at any given time, the price you pay for a share will be higher than the price you could sell it for. For further information on the principal risks the Company is exposed to please refer to the Company’s Investor Disclosure Document available on our website. The Company can borrow to purchase investments, this could potentially magnify any losses or gains made by the Company.
Mobius Investment Trust plc has used all reasonable efforts to ensure the accuracy of the information contained in this document but makes no guarantee or representation as to the reliability, completeness or accuracy of such information.
Mobius Investment Trust plc is a public limited company whose shares are premium listed on the LSE and is registered with HMRC as an investment trust. The Company has a Redemption Facility through which shareholders will be entitled to request the redemption of all or part of their holding of Ordinary Shares on a periodic basis. The first Redemption point for the Ordinary Shares will be 30 November 2022 and each subsequent Redemption point shall fall on 30 November every third year thereafter.