Over three years ago, a group of investment management professionals based in Singapore and London announced the launch of a new approach to investing into Emerging Markets. Instead of conforming to the approach adopted by most global emerging markets managers, where all markets are managed under the same roof, Milltrust claimed that better alpha was available by harnessing the talents of the best regional asset managers, who live, breath and invest in their own markets.

With a line-up of managers drawn from well-known financial institutions around the globe, Milltrust launched its EMMA platform (“Emerging Markets Managed Accounts”), giving its clients the option to select their own weightings across the various geographies represented by the various funds, or to follow the advice of its investment solutions team, which publishes detailed geographical allocation advice every quarter. Well, 40 months later, Milltrust International now finds itself amongst the best performers in the Emerging Markets equity asset class, not only for some of its single managers that make up the global universe, but also for its GEMS portfolio.

?Our GEMS multi-manager portfolio solution which shows an active allocation across our selected country and regional funds benefits from two sources of alpha, one coming from the top down by regularly tilting the portfolio towards the more favourable economies, ?and the second one coming from our investment teams? bottom up stock-picking?, explains Eric Anderson, Managing Partner and Head of the Investment Solutions business at Milltrust International in London.? ?Investors are then able to invest directly in the underlying funds as per our geographical allocation advice which we rebalance quarterly.?

Milltrust?s clients already include both public and corporate pension funds, and since inception Milltrust have delivered circa +17% net returns for them from their GEMS portfolio, significantly outpacing the market indices (MSCI EM Index: -9.7%), and many of their peers (see table below).

GEMS peer group table

 

 

 

 

 

 

 

Milltrust has built its global EM offering by appointing locally-based investment teams to run regional strategies across the developing world and attributes its success to following some basic investment principles, adds Eric Anderson. Anderson’s cardinal rules are:?

(1) Do your homework.??This is particularly relevant in Emerging Markets where the range between good and bad companies is huge. ?Milltrust works with managers that place a huge emphasis on primary research and have large teams of professional analysts at their disposal. Not everything is always what it appears to be in the developing world, so you must do your research.

(2) Leave the bad stories for someone else.??The case for passive investing in Emerging Markets has diminished sharply.? Not every company in the index deserves to be owned so why should you be forced to have them in your portfolio; in many cases index weightings are often poor representations of the domestic growth drivers.? The alpha generation in these markets is driven by active managers picking good stocks, irrespective of their inclusion in the index.

(3) Only work with the best. These are the locally-based investment houses that have the corporate strength to ensure longevity, strong governance and oversight, proper regulation and a long-term commitment to their investors.? Their investment teams will also have the necessary bandwidth, access and penetration in these regions to maintain a strong informational edge in what are fast-growing and deepening markets.

The Emerging Markets have been an incredibly tricky and difficult place to be invested in over the past few years, and still, some strong headwinds exist.? However, investors simply cannot afford to ignore a region which accounts for nearly 50% of global GDP growth, especially as the developing world represents 80% of the world?s population leaving plenty of room for more growth. The question should not be whether to invest, but ?how? to invest. Milltrust seems to have put together a strong case for its approach.