Mobius Investment Trust (MMIT) invests in small- and mid-cap companies across the emerging- and frontier-market universes, aiming to generate total returns of 12–15% over the long run from a highly concentrated portfolio of 20 to 30 stocks.
The trust is managed by 30-year veteran manager Mark Mobius as well as his former colleague and successor on the Templeton Emerging Markets Investment Trust Carlos Hardenberg. Greg Konieczny, another former Franklin Templeton workmate, co-managed the trust until he left last month (June 2020). The managers have a bias towards quality growth stocks which they aim to buy when they are trading on a discount to their intrinsic value and then hold for the long term.
MMIT is intended to be highly active and does not have a formal benchmark. The intention is to exploit the inefficiencies in the small-cap markets and to use a ‘private equity’ method of investing. This consists of buying undervalued companies and engaging with management to unlock the value. As well as more traditional operational improvements, the trust encourages improvements in the ESG performance of portfolio companies, believing that this is not only good in itself, but also accretive to shareholder returns (as we discuss in the ESG section).
MMIT raised £100m to launch in October 2018. Market conditions have often been tough since then, and though periods trading on a premium have allowed further issuance, the shares trade on an 8.9% discount to NAV. This is despite strong performance during the pandemic (see the Performance section) which means MMIT has now outperformed the average emerging-market trust since launch.
MMIT offers an interesting way to gain access to areas of developing-world markets which are often little held by investors, chiefly frontier markets and small caps. The team managing the trust are also impressive, even after the exit of Greg Konieczny. The return target is ambitious, requiring the addition of 2% to 5% of alpha a year on top of the 10% historical average returns for emerging-market small caps were it to be repeated. However, we think the highly active approach could well be able to achieve this, although the managers’ track record is made up of investing mostly in larger companies.
On the other hand, investors have to accept that as a relatively small trust, the board’s room for manoeuvre regarding the discount is likely to be limited. We think it will likely take a sustained period of outperformance for the shares to trade on a premium again and for the board to be able to grow the trust with issuance. Taking this into consideration, as well as the current high levels of risk aversion in the market given the economic fallout from the pandemic, we think the discount is attractive but we also think it could take some time to close.
|Emerging-market smaller companies have generated returns of over 10% in recent decades||Small size of the portfolio could lead to questions over longevity in the long run if it doesn't grow|
|Engagement strategy offers ability to add value and encourage positive change||Discount unlikely to be protected by buybacks until trust is much larger|
|Offers access to smaller companies and smaller countries which are often not held by mainstream funds||Tendency to hold cash could hold back returns if it persists|