e-fundresearch.com: What is the current size of the fund?
Sophia Whitbread: The strategy AUM is now USD435m.
e-fundresearch.com: Do you also manage other funds or mandates?
Sophia Whitbread: I am the Alternate Manager for the Newton Global Emerging Markets Fund.
e-fundresearch.com: What is the total amount of assets you manage currently?
Sophia Whitbread: USD515m.
e-fundresearch.com: How long have you been in the business as a fund manager?
Sophia Whitbread: I joined Newton Investment Management in Autumn 2005 as a Global Financials Equity Analyst, with a focus upon Emerging Markets. I became an Emerging Markets Equity Portfolio Manager in January 2011.
e-fundresearch.com: What are the main steps in your investment process and in which area is your competitive edge to add value to investors?
Sophia Whitbread: At Newton, we have invested in Emerging Market equities for over thirty years as part of our global, thematic, long-term, and long-only, investment approach. Our fifteen global investment themes represent key forces of observable change and provide a stimulus for debate and a focus for research. We benefit from our proprietary research team of eighteen global industry analysts, who help identify the best companies in each sector, while our long-term investment horizon (between three and five years) allows us to use shorter-term share price weakness as a long-term buying opportunity. We are all based in the same office in London, allowing efficient communication and swift implementation of investment decisions, whilst benefitting from the dispassionate, global, perspective and excellent corporate access offered by a world investment centre.
With regard to investing in Emerging Markets our approach is unconstrained, with our positioning informed by our thematic views and not by index weights. Our portfolio is concentrated, typically holding between fifty and eighty stocks in which we have high conviction. When selecting stocks for the portfolio, we emphasise the importance of:
- quality of balance sheet and competitive advantage
- sustained returns on capital to be maintained above the cost of capital through the cycle
- governance standards: we look for the companies which are run in the interests of minority shareholders, This is not always the case in Emerging Markets where State Intervention and influential major shareholder groups may result in the interests of minority shareholders not being upheld.
e-fundresearch.com: Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?
Sophia Whitbread: For the Newton Emerging Income and BNY Mellon Emerging Equity Income Funds, we use the FTSE Emerging Index as our reference benchmark. This is a deliberate choice over the MSCI Emerging Markets index, which we understand some competitors use, as we believe that the FTSE is ahead of the MSCI in terms of how the emerging world is evolving. Most importantly, the FTSE Emerging Index has already ejected South Korea: South Korea is among the most developed markets which have been regarded as emerging, with relatively lower growth potential, and yet it makes up a meaningful proportion of the MSCI Emerging Index. South Korea also has a low dividend yield as a market, paying out only 11% of earnings. This makes the market fundamentally less attractive to us, and thus it was important to us to find a benchmark that was most representative of where we were looking for investment ideas.
e-fundresearch.com: Which performance did you achieve for the fund YTD and over the past five calendar years in absolute terms and relative to relevant benchmark or other reference indices?
Sophia Whitbread: Year to date, the Newton Emerging Income fund has delivered a total return of -0.73bps in absolute USD terms and -0.31bps relative to the FTSE Emerging Index. The BNY Mellon Emerging Equity Income fund has delivered a total return of -0.97bps in absolute USD terms and -0.55bps relative to the FTSE Emerging Index. Both funds launched in the fourth quarter of 2012 and thus do not yet have a five year track record.
e-fundresearch.com: Thank You!