You wait for one investment trust launch from a legendary fund manager then, before you know it, along comes another. Following last week’s announcement of Smithson Investment Trust, we now have more details on Mobius Investment Trust, the latest offering from emerging markets guru Mark Mobius.
My articles on Smithson have been my most popular to date, and by some distance. So it seems there’s an appetite to find out about new investment trusts coming to the market. That may be a warning sign in itself of course! But I like to keep an eye on new issues when I can. While it’s rare that I’ll invest, it’s useful to make notes that can be referred to later.
Mobius’s track record
Mark Mobius, a spritely 82 years of age, is best known as the manager of Templeton Emerging Markets. He ran TEMIT, as it is often called, from its launch in 1989 to 2015. Since inception, it has generated returns of 12.4% a year, while the MSCI Emerging Markets Index boasts 10.3%.
That’s pretty decent outperformance over nearly three decades, although the large size of this trust (now £2.2bn) may have hurt its more recent record. Over the last ten years, it’s pretty much neck and neck with its chosen benchmark. Perhaps that’s one reason why Mobius is starting all over again.
A trio of managers
Mobius will be joined on the investment committee by Carlos Hardenberg and Greg Konieczny.
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Hardenberg worked with Mobius at Templeton Emerging Markets and also managed the Templeton Frontier Markets Fund. Konieczny ran a specialist Templeton fund jointly listed in London and Romania called Fondul.
Although it’s valued at nearly £2bn, I haven’t come across Fondul before. A quick glance at its latest fact sheet suggests it takes large positions in unlisted companies. It trades at quite a hefty discount, too.
Every new fund has to have a gimmick these days. With Mobius Investment Trust it seems to be that it will actively engage with the companies it invests in, seeking to improve their environmental and social policies and their governance. Making them better corporate citizens, you might say.
As for the companies themselves, they will be small- and mid-caps in emerging and frontier markets. Mobius Investment Trust might invest up to 15% of its assets in private companies, too, including some at the pre-IPO stage.
For those unfamiliar with the terminology, emerging markets are the likes of China, Brazil and India. Frontier markets are a little more hairy, as investments there tend to be a lot less liquid, making it harder to buy and sell in any significant size. Think Nigeria, Bangladesh, Turkey and Vietnam.
Mobius Investment Trust will have a concentrated portfolio, which seems to be very fashionable these days. It is expected to have between 20 and 30 individual holdings once it’s fully invested.
The targeted rate of return is 12-15% per annum, which looks pretty punchy to me. It’s greater than TEMIT has achieved since inception, and Hardenberg and Konieczny have only produced 11-12% during their most recent management stints. I must admit that I am quite curious how these target returns are calculated, as presumably the investment bankers running the new issue process have to check these numbers have some basis in reality.
Perhaps somewhat surprisingly, dividends could be a material part of overall returns. No specific dividend details are given other than the first payout is likely to be paid in the first half of 2020. I’m not sure I would count on the dividend yield being that high though.
Key dates and stats
Applications to invest need to be in by 25th September, or maybe a little earlier depending on your broker of choice. The shares are due to join the market on 1st October and the ticker will be MMIT.
The fund is looking to raise £200m initially, with £4m of that earmarked for launch expenses. The annual management fee starts at 1% on assets up to £500m, falling to 0.75% for assets over £1bn. The trio of lead managers are investing £5.7m, so will hold just under 3% between them.
The fund administrator will cost you another 0.225% on the first £200m of assets, falling to 0.175% over £500m. Throw in the depositary fee, and total costs look like they will around 1.25% a year, initially at least. This looks a little on the expensive side, but it should become a little more reasonable as the fund grows over time.
The emerging markets condundrum
You may be familiar with the standard investment warning that “share prices can go down as well as up”. Well, for emerging markets you need to be prepared for some serious and prolonged down periods.
I’ve owned a few such funds in the past, most recently the JPMorgan Emerging Markets Investment Trust, and it’s certainly been a rocky ride. I’m not really convinced that, as a very long-term holder, there are excess returns to be made from this sector versus more developed markets. I need to do more homework on that front, although I’m still drawn to Fundsmith Emerging Equities as a potential holding.
But there are a couple of positive factors highlighted in the Prospectus for Mobius Investment Trust that are worth noting. Firstly, emerging markets look cheap, relative to more developed markets, on a couple of basic valuation measures:
Secondly, emerging market currencies have taken a bit of a hit in recent years (Turkish Lira anyone?) The Prospectus highlights that the JP Morgan Emerging Markets FX Index is close to an eight-year low. It was 62 as at 31 August 2018 compared to a high of 108 in 2011. So, if this reverses, sterling-based investors should benefit.
The multimedia charm offensive
There’s a short video on the corporate web site featuring the three lead investors, should you want to inspect the whites of their eyes.
Hardenberg seems to have the most screen time, but it’s not sure it’s worth reading too much into that. Mobius certainly appears to be in good health. Certainly, setting up a company in your early eighties is no mean feat.
I also found this more in-depth interview at Proactive Investors and there is a recent Brewin Dolphin podcast with Mark Mobius that’s worth listening to as well. In the podcast, Mobius tell us that the fund will be largely focused on helping companies with their governance issues, rather than their enviromental and social policies.
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