Emerging Markets Unconstrained

Winner of the Emerging Market Equity Manager of the Year at the Professional Pensions Investment Awards 2016. 

The Emerging Markets Unconstrained strategy aims to outperform its benchmark, MSCI Emerging Markets Index, by 5% per annum over a three-year rolling period. It targets high returns and long term capital growth by investing in a focused portfolio of primarily equity and equity-related securities traded in the Emerging Markets.

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Emerging Markets Unconstrained Strategy

The Emerging Markets Unconstrained strategy targets strong excess returns through fundamental bottom-up stock selection, within an integrated top-down macro framework.

Our unconstrained EM strategy is biased towards smaller EMs as these are earlier in their development and tend to have stronger growth and demographic profiles, thereby offering exposure to structural growth in rapidly developing economies. We will still own larger EM markets selectively, depending on our perception of the opportunity set at the time, from both a top-down and bottom-up perspective.

Portfolio construction is the synthesis of idea generation, conviction and risk management. The strategy will be focused and will typically hold between 30 and 40 stocks, with an active share typically above 90%.

The following aspects of our investment process provide an edge and set the TT proposition apart from the competition:

  • Unconstrained and concentratedThe strategy will be biased towards the faster growing EMs with younger populations rather than the older, larger EMs that dominate most EM funds. 

  • Top-down and bottom-up linkageTT’s Emerging Market process utilises a combination of top-down and bottom-up analysis. This linkage allows top-down factors to guide the team as to where to focus their resources to find attractively valued growth stocks.  
  • Focus on Free Cash FlowWhilst our fundamental company analysis considers multiple return and valuation metrics, we do have a specific focus on Free Cash Flow.  There are three core reasons for this: 

  1. Fickle capital flows can undermine a company’s ability to grow, especially in Emerging Markets. Balance sheet strength, particularly strong Free Cash Flow, provides greater visibility on growth potential. 
  2. Inflection points at times of declining capital investment and improving Free Cash Flow are often catalysts for improving returns to investors. 
  3. A focus on cash flow ensures an alignment of interests between minority and majority shareholders.  The Free Cash Flow ‘lens’ is a useful one in which to frame our engagement with company management.  
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