Edinburgh’s largest fund company is counting on an Indonesian real estate developer, a Ukrainian chicken exporter and a Turkish gold miner to help it show rewards are still worth the risks in emerging markets.
Standard Life Investments (SL/), which manages $2.2 billion of emerging-market stocks, bought Lippo Karawaci (LPKR) Tbk PT, based near Jakarta, poultry farmer MHP SA (MHPC) from Kiev and Koza (KOZAL) Altin Isletmeleri AS, an Ankara-based gold producer, for a new mutual fund it started last week. They are among the company’s “high conviction” ideas, manager Ross Teverson said.
The MSCI Emerging Markets Index (MXEF) gained 1.8 percent in the past year, lagging behind the 7.3 percent advance for the MSCI World Index (MXWO) as Europe’s debt crisis makes investors more risk averse and concern mounts about the slowing Chinese economy. That’s forcing fund managers to become increasingly selective in emerging markets and look beyond the biggest companies.
“We are in a good place for emerging markets,” Teverson said in an interview in the Scottish capital. “In the short term, it’s inevitable that emerging market equities will be dependent on what happens in developed markets, but the structural outlook is very compelling.”
Standard Life’s Global Emerging Market Equity Unconstrained Fund started with $8 million of seed capital and will hold 35 stocks, a condensed version of the firm’s existing 64 million- pound ($103 million) Global Emerging Markets fund.
That product, which has gained 10.8 percent in value since it started on May 29, has 89 stocks, the biggest being Samsung Electronics Co., the world’s biggest maker of televisions and mobile phones, and Brazilian oil company Petroleo Brasileiro SA. (PETR4)
Indonesian property developer Lippo Karawaci, which has gained 46 percent this year, is also in that fund. Teverson picked it as one of his favorites stocks because of low mortgage penetration in the country, falling borrowing costs and the company is building on its land more quickly.
“When we spoke to the company towards the end of last year it became apparent they were accelerating the rate at which they’re developing the land bank,” Teverson, 35, said at his office on Nov. 2. “That was a change the market wasn’t pricing in at all at the time.”
In Ukraine, MHP, whose full name is Mironovskiy Hleboproduct, grows crops to feed chickens and exports them to the Middle East. Its global depository receipts have risen 43 percent in London this year. Net income jumped 83 percent to $122 million in the second quarter compared with $67 million a year earlier, as the average chicken price rose by 25 percent, the company said in an Aug. 29 statement.
Standard Life is the fund management business of the Scottish life insurer of the same name. Its assets rose to a record 163.4 billion pounds in the third quarter.
Teverson said the company bought Turkish gold miner Koza for its emerging-markets funds because it looked a better bet than South African competitors. Unlike the larger of the two funds, the unconstrained one isn’t tied to a benchmark.
Koza, whose second-quarter profit more than doubled, is up 69 percent this year compared with a drop of 10 percent for Gold Fields Ltd. in South Africa where strikes blighted production.
“Koza Gold is a lower cost producer without a lot of the risks that the South African miners face,” Teverson said. “It’s much more attractive in the precious metals space than say the South African miners.”
Other picks include First Quantum Minerals Ltd. (FM), a miner in Zambia whose Canada-listed shares gained 14 percent this year, and Mart Resources Inc. (MMT), a Canadian-listed oil producer with assets onshore in Nigeria that has doubled this year, even as pipeline disruptions hurt profit.
Teverson said he also holds Mexican bank Grupo Financiero Banorte SAB. (GFNORTEO) Its shares have advanced 70 percent this year.
“I don’t feel the need to own a Chinese bank or a Brazilian bank just because they are large stocks in the emerging markets index,” he said.
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