The Luxembourg-domiciled fund recently completed a three-year track record and surpassed $1bn (£0.6bn) in assets under management.
Based in Denmark, Nøddekær has been assessing emerging markets for 14 years. The fund, which launched on 15 April, 2011, bases its investment strategy on Growth at Reasonable Price (GARP) and integrates the fundamental financial analysis along with environmental, social responsibility and governance (ESG) analysis to form a “high-conviction” portfolio of 40-60 “emerging stars.”
Each company among the 62 in the portfolio meets ESG criteria, he added.
The top country picks of the fund are: India (13.11%), Taiwan (12.24%), and South Africa (9.43%).
Modinomics optimism
In Asia, the fund is keen on select countries such as India, after the recent elections that brought Prime Minister Narendra Modi into power.
Nøddekær believes the clear mandate awarded to the new Indian government will allow the country to open up the economy and initiate key reform steps, including boosting the manufacturing sector.
In fact, Modi outlined his plans of making the country a manufacturing hub for global players in his recent National Day address.
“There is a need to create jobs for the youthful, huge population who are relatively unskilled, so India will need low-end manufacturing,” Nøddekær said.
Modi is therefore likely to support manufacturing capabilities through infrastructure building and reform of labour regulations.
“I have not seen any country without a period of manufacturing. I think India will have to go through this [also] as part of its development.”
India is in a “sweet spot,” he said. Economic growth is set to align with interest rates turning lower by 150-200 basis points over the next three-four years.
“Even after a good performance (of Indian indices), we are still very keen on India due to Modinomics. There is an incredible amount of low-hanging fruit across India.”
Industrial companies would be the initial beneficiaries of the reform process, the manager said, adding that the portfolio is positioned in interest rate-sensitive sectors like banks, financials and property.
“If mortgage lending is made significantly cheaper, then there will be no problem on the demand side [for property]. And there would be some very good Indian companies that can address supply.”
“We like the mall assets, particularly in Mumbai. With the fall in interest rates, there would be lot of opportunities coming up in two-three years.”
In the property sector, the manager has been holding Phoenix Mills (2% weighting in the portfolio as of 31 July) for more than three years and also has exposure to Shoba Developers (0.9% weighting), which he thinks has the land bank to support long-term growth.
In the financial services sector, ICICI Bank with a 2.3% weighting in the portfolio, features in the top 10 holdings.
Mumbai-headquartered Just Dial (1.45% weighting), a company providing search services all over India, through phone, web, mobile, is also attractive.
“[Just Dial] will be in a very sweet spot with not only increased demand [as consumer consumption increases], but also with the increasing uptake of mobile phones.”
Betting on Taiwanese technology
Elsewhere in Asia, Nøddekær said he likes the Taiwanese technology sector and accordingly the portfolio is to a “large degree” exposed to the semiconductor industry and to some extent high-end industrial automation.
“There are some value-creating companies and with good balance sheets. The adaption of cheap smart phones is a very long lasting trend.”
Apart from Delta Electronics (1.57%), the manager has invested in Chroma ATE (1.24%), which does semiconductor testing equipment and Taiwan Semiconductor Manufacturing, which is the fund’s third biggest holding (4.58%).
Positive on select China
Even as the fund manager has a bearish view on the Chinese growth story, he is positive on select sectors in China as the country shifts from an export-driven to service-oriented economy.
He likes companies in the Internet, healthcare and pharmaceutical sectors, as well companies providing services that address the environmental issues that China is facing.
China Everbright International (1.52%), which has a project to turn waste into energy, is a key pick. “We are generating a good return from this investment and we are optimistic on the longer-term outlook.”
But the fund manager is shying away from Chinese state-owned banks, coal and big oil and gas companies, as he does not see value creating opportunities in those sectors.
Cashing in on the Philippines
“The Philippines is improving most in the emerging markets space with a combination of underlying growth, increasing consumption, and a fall in interest rates from historical levels.”
Accordingly, on a relative basis, the manager is betting on companies like SM Investments (1.18%), Universal Robina (1.62%) and Ayala (1.22%), which he said is strongly managed, has growth potential, and is faring well in terms of corporate governance standards.
Overall, Nøddekær finds emerging markets attractive in terms of price-to-earning, earnings per share and price-to-book value.
“But you should not be fooled by headline numbers. Some of the heavyweights in the indices such as Chinese state owned-banks or say Gazprom in Russia, are trading extremely cheap, dragging down the valuations of overall markets.”
“There is a reason why emerging markets are cheap and you should not buy everything, but instead select quality companies.”
