Small Companies, Big Returns

VIDEO: Mobius Investment Trust's Carlos Hardenberg says investors should look to smaller companies for big growth in emerging markets

Holly Black 7 December, 2020 | 11:39AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Carlos Hardenberg. He is Manager of the Mobius Investment Trust. Hello.

Carlos Hardenberg: Hi, Holly. Nice to see you.

Black: So, Carlos, do you want to start off briefly, just telling us what the trust does?

Hardenberg: Yes. Well, what does the trust do? The trust is focusing on emerging markets and frontier markets. And ultimately, we have a very clear aim. Number one, sustainable, robust, positive long-term returns for our shareholders and the way that we are aiming to generate those is by finding unique companies in emerging markets, especially smaller and mid-sized companies, predominantly run by families. We run a highly concentrated strategy which is very different to what you see in the market, 26, 27 stocks on average, not the 90, 100, 120-stock portfolio. And we have really unique investment opportunities which we have uncovered in especially a couple of segments which we like the most and that is technology plus healthcare and education.

Black: So, Carlos, I think when people think about emerging market investing, they think of Alibaba and Taiwan Semiconductor. And you're purposefully shooing that sort of company and looking for these small caps. Is that a riskier proposition for investors?

Hardenberg: Well, if you don't know the space very well, then it may be more risky. I would say it's less risky because many of these companies are still run by first or second-generation entrepreneurs who have 90% of their wealth if not 100% of their wealth tied into this business case. So, they've got a very robust risk management. They're very driven. They're very entrepreneurial. And just like Alibaba started, so we're trying to look for the next Alibaba in the emerging market space. And small companies, the big difference is that small companies today are the ones which disrupt, are the ones which are at the forefront of technology, are the ones which are very quick in understanding also some of the local trends in emerging markets much better because they are more local.

Black: So, what are some of those local trends that you're talking about?

Hardenberg: So, for example, if you just look at technology in isolation, who are the companies that deliver and develop the most exciting technologies and ideas when it comes to new electric vehicles, when it comes to new forms of power generation, when it comes to all sorts of alternative power generation. We have in the portfolio one of the largest suppliers of special electronic parts for wind farms. When it comes to supplying technology and know-how for new ways of transportation, also E-bikes. I'm sure corona has meant for many people to get familiar with the idea of E-biking and again that is an area which is dominated by smaller companies in Asia which have developed technologies, products, services around those consumer products.

But also, in the more industrial space, if you look at ecommerce in general or if you look at, for example, much more complex aspects that relate to communication, again, we're seeing that smaller companies are developing the ideas, the software, the hardware, which is increasingly needed by end products. And then, of course, we are seeing that especially again, and I think it's kind of facilitated through corona, the emerging market consumer very, very rapidly was, well, forced to use ecommerce, was forced to use online channels in order to consume, in order to learn, in order to make sure that their children would attend school, et cetera. And we've seen that in emerging markets it worked far better than in many developed markets. And again, there are many companies which are behind those developments.

Black: Carlos, thank you so much for your time. For Morningstar, I'm Holly Black.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor, Morningstar.co.uk