According to the information from the Smart Financial News, Rob Marshall-Lee, the founding partner and chief investment officer of Cusana Capital LLP, is one of the few fund managers who have achieved returns similar to the US stock market by investing in emerging market companies. Based on the latest data as of September 30, the emerging markets equity fund he manages has brought investors a 37% return over the past 12 months, outperforming the S&P 500 index and 97% of peers. It is noteworthy that, among the top 20 companies with the highest weight in the benchmark MSCI Emerging Markets Index, he only holds one company, attributing its outstanding performance to this.

Marshall-Lee pointed out that most companies in emerging markets have destroyed the returns brought by selected high-flying stocks. He stated that it is best to have a concentrated portfolio, modeled after the seven giants of the US stock market. The fund manager mentioned in an interview, "In emerging markets, the top 5% of stocks create 83% of net wealth, while 95% of stocks overall lose value. You need to avoid that 95% and focus all efforts on finding that top 5%. Within this range, we strive to identify the top 25 or 30 companies with the highest risk-return ratio."

For example, he mentioned that chipmaker Taiwan Semiconductor (TSM.US), Indian consumer goods company Titan Co., and NuBank based in Sao Paulo often share common characteristics such as good governance, strong market share growth potential, and high capital returns.

Although many investors diversify their investments to reduce risk and rely on tracking benchmark indices, Marshall-Lee stated that this practice actually increases risk. For instance, just before the outbreak of the Russia-Ukraine war in 2022, his fund exited positions in Russia because the focus was on 'avoiding permanent capital losses,' and the fund estimated that there was a 30% possibility of all funds invested in the Russian stock market being lost from that point.

Purposeful stock selection

On a global scale, he has avoided the majority of the over 4,000 listed companies in emerging markets, purchasing about 30 stocks out of 300 investable stocks. "Surprisingly, most emerging market stock portfolios resemble each other, especially the top 10 stocks in emerging market funds - everyone holds Samsung and large benchmark stocks."

Marshall-Lee manages two funds with the same emerging markets strategy, managing $0.33 billion in assets, a continuation of the $3.5 billion strategy he managed from 2011 to 2020 when he left Newton Asset Management. In 2022, he co-founded the boutique Cusana Capital with Jos Trusted, a former manager at Odey Asset Management. The fund is supported by Sector Asset Management, one of Norway's largest independent investment companies.

It is widely believed that Trump's election means investors should reduce their exposure to emerging market stocks, but this fund manager refuted this view. He said that the prevailing market logic may prove to be completely wrong, just like when Trump was first elected at the end of 2016.

Currently, the strengthening dollar, rising U.S. bond yields, and the sell-off in Asian stock markets have led to a decline in emerging market assets, with benchmark indices falling by 2.2% in November, while the S&P 500 index rose by 3.7%. This has widened the performance gap between the two asset classes to record levels.

Some competitors enhance returns by adding active U.S. companies within their emerging market equity funds, while Marshall-Lee's guidelines require that 100% of the stocks in his portfolio must be driven by emerging markets, meaning they must either be listed, registered in emerging markets, or have more than 50% of their profits, assets, or income from emerging markets.

Nvidia met the above criteria of 50% emerging markets in the past, so Marshall-Lee purchased the stock early in 2023. He sold these stocks in June 2024 with a profit of 370%, as the company's disclosed segment data no longer met this standard. He mentioned that stocks registered in Hong Kong contributed about 20% of this year's returns.

Geographically, Marshall-Lee's largest exposure is in Asia, where he is bullish on the 'rapidly growing domestic enterprises in India and ASEAN markets.' Over the past 13 years, 30% or more of his portfolio has been in India, focusing on consumer-centric companies like Titan. The fund manager stated, 'We made about 14 times our money on this stock. The risk is relatively low, but the returns are very high.'

Additionally, 10% is allocated to Vietnam, about 10% to Indonesia. In China, Marshall-Lee is optimistic about electric vehicle battery companies, often led by founders and operating at their own risk; Marshall-Lee also holds some Chinese domestic cosmetic companies grabbing international brands' market share.

The portfolio manager refused to disclose his favorite stocks, but mentioned that in the past 12 months, his fund held stocks of companies like Varun Beverages, Central Depository Services India Ltd, and SEA Ltd.

He mentioned that outside of Asia, Turkey offers potential opportunities as its economic management improves. Although his investments in Latin America are relatively limited, he is very interested in Argentina. He said: 'When you are out of hyperinflation, there is a significant dual risk, but with practically zero credit penetration in your economy, there is great potential. We are not currently investing there, but it is definitely a market worth keeping an eye on.'