ThamesRiver Capital is to launch on June 22 a global emerging markets fund in a UCITS wrapper offering daily liquidity. The firm, now a unit of F&C Group, has run a Cayman emerging market long/short fund since March 1. 

The ThamesRiver Global Emerging Markets Absolute Return Fund will target annual returns of 15-20%. It will seek net exposure of 30-90% and gross exposure of 100-150% (compared with a higher normal net exposure target limit of up to 120% and 300% gross exposure in the Cayman fund).

The fund managers are Hugo Rogers and Kristof Bulkai. Both men are also fund managers for the ThamesRiver Water and Agriculture Absolute Return Fund, which began investing in 2009. 

“Emerging markets are no longer a ‘new’ asset class, valuations have converged and there is plenty of mobile capital invested in this area,” said Rogers. “This justifies a more active approach with a commitment to capital preservation.”

Though GDP growth in emerging markets has historically been driven by the expansion of exports and significant investment in infrastructure, the fund managers believe that domestic consumption will become increasingly important. As consumption replaces exports there will be many structural changes which will create opportunities for us as long/short investors.

Over the last decade, emerging market equities have delivered stellar returns for investors and allocations are now common in the portfolios of both private and institutional investors. However, as these markets have matured, valuations have converged with those in developed world and the managers believes the time is now ripe for investors to adopt an absolute return strategy and re-evaluate the long-only strategies that have dominated the emerging sector. 

The Fund will be managed in a similar manner to the Thames River Isis Fund, a Cayman-domiciled long/short Fund, already run by the Bulkai and Rogers. They will be joining the 11-strong emerging equities team at F&C.

“Emerging markets are no longer a ‘new’ asset class, valuations have converged and there is plenty of mobile capital invested in this area,” Rogers said. “This justifies a more active approach with a commitment to capital preservation. It is also important to realise that the investment story is changing rapidly.”

Bulkai and Rogers’ investment strategy will be focused across seven sectors - Materials & Energy; Construction & Engineering; Consumer Staples; Pharmaceuticals & Healthcare; Banks, Financials & Real Estate; Consumer Discretionary; and Telecoms, Media & Technology. Within each sector core structural and cyclical ideas are identified based on the team’s top-down and industry views; their geographic and sector selection forms a roadmap for their stock-picking.

He added: “GDP growth in GEMs has historically been driven by the expansion of exports and significant investment in infrastructure. Looking ahead, domestic consumption and the appetites of the middle classes will become increasingly important. As consumption replaces exports there will be many structural changes which will create opportunities for us as long/short investors.”

Bulkai and Rogers’ highest conviction idea is currently within Telecoms, particularly mobile phones where consumers are shifting towards the new generation of products such as iPads and smartphones. Due to the increase in mobile data consumption, greater bandwidth is required for such products. The team anticipates a rising demand for more efficient fixed line provision to adequately service higher-quality mobile and internet merchandise. In this space both fibre-optic based and copper based networks will struggle with capacity - resulting in greater pricing power and ultimately more investment in broadband infrastructure.

“We also expect to have cyclical short positions in engineering and base metal companies,” Rogers said. “The roll-off of fiscal stimulus packages will see them suffer price decreases and they will struggle to demonstrate year-on-year earnings increases."