The £340m UCITS Global Emerging Markets Fund he now runs is two-thirds bottom-up and one-third bottom-down. It holds 60 stocks across a variety of markets.
From February 2014 to February 2015, it returned 21.93% against the MSCI Emerging Markets sector benchmark of 13.88%. Its top 10 holdings have a concentration of 28.37%.
Greenberg’s impressive track record can perhaps be put down to his stock picking philosophy. To him, the most important consideration is a company’s individual merit. His only consideration when looking at its country is whether or not a geopolitical situation has the potential to hinder a stock’s development. Its sector carries almost no weight.
“We do not want to find a great company in a terrible country, unless the company is somehow able to ignore the fundamentals of a country,” he says.
He says picking companies based on their relative cheapness is somewhat naïve. All his stocks are subjected to a full financial analysis that looks at factors such as management motivations and attitudes towards minority shareholders. Such scrutiny helps to create a potential ‘map’ of a company’s future.
“Many might see a badly run, cheap company and think ‘so what? It’s so cheap I still want to own it’; but if it’s run by incompetent or dishonest people you wouldn’t really want to be involved, so we check all that stuff out first,” he says.
“Why would you want to own a company that is a bad citizen?”
Macro outlook
Despite the fund’s stockpicking process being driven by the merit of individual companies rather than their country, Greenberg says the economic state of an emerging market has a large, if indirect, effect on the geographic positioning of his holdings.
At present, his largest allocation is in China, at 34.22%, which is far higher than the sector benchmark of 22.31%. His second largest is in India at 16.69%, far overweight the benchmark of 7.57%, while his third is in Taiwan at 13.89%.
Greenberg says China is around one standard deviation cheap on a long-term and medium-term basis, while India is priced fairly on a very long-term basis, but is one standard deviation too expensive on a medium to long-term basis.
He puts China’s generous pricing down to its slowing economic growth and increasingly accessible markets. He says the latter has been helped by vehicles such as the Hong Kong Stock Connect, which facilitates reciprocal investments between Hong Kong and Shanghai, and the renminbi-qualified foreign institutional investor scheme, which allows foreign asset managers to invest in Chinese domestic capital markets.
“A-shares have not always been available, and none are currently featured on the MSCI China Benchmark, which means it is not reflective of China’s underlying economy and consists of relatively uninteresting companies,” he says.
“The reason we are overweight is that we have a significant access to A-shares, giving us access to many more companies that are reflective of the country.
“This increased access to mainland stockmarkets has given China something of a boost, and eventually we think the A-share market will become open to a point at which many of the stocks move into its other markets, allowing them to become more interesting.”
