Global Emerging Markets

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

The Emerging Markets Equity strategy aims to outperform its benchmark, MSCI Emerging Markets Index, by 3% per annum over a three-year rolling period. It targets high returns and long term capital growth by investing in a portfolio of primarily equity and equity-related securities traded in the Emerging Markets.

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Global Emerging Markets Equity Strategy

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

TT believes that EMs are structurally inefficient, thereby offering attractive rewards to successful active managers. This is due to the poor savings base in many EM countries, which therefore are dependent upon foreign flows of capital. There is also a lack of analysis, both by the sell-side and buy-side communities. Our process aims to target these inefficiencies.

Top-down analysis of countries and currencies is expected to contribute approximately a third of the long term outperformance, with detailed fundamental analysis on stocks expected to drive the remainder.

Portfolio construction is the synthesis of idea generation, conviction and risk management. The strategy will typically hold between 50 and 60 stocks, with an active share typically above 80%.

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

  • Top-down and bottom-up linkage. TT’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 Flow. Whilst 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.  
  • Active currency  management. TT has decades of experience managing FX and a consistent, positive record doing so. While currency is a decidedly secondary alpha bucket, its primary function is that it empowers our analysts, who know we can take out FX risk effectively, to analyse stocks more purely in local terms, as they should.
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