Zhitong Finance learned that Rob Marshall-Lee, founding partner and chief investment officer of Cusana Capital LLP, is one of a few fund managers who have received similar returns on the US stock market by investing in emerging market companies. According to the latest data as of September 30, the emerging market equity fund he manages has brought investors 37% of returns over the past 12 months, surpassing the S&P 500 index and 97% of its peers. Notably, he only owns one company out of the top 20 most weighted companies in the benchmark MSCI Emerging Markets Index, and attributes his excellent performance to this.

Marshall-Lee notes that the reason is that most companies in emerging markets are ruining returns from a select batch of bullish stocks. He said that it is best to have a centrally held investment portfolio and chose the model of the Big Seven US stocks. In an interview, the fund manager said, “In emerging markets, the top 5% of stocks created 83% of net wealth, while 95% of stocks lost overall value. You need to avoid that 95% and focus all your efforts on finding that 5%. Within this range, we tried to identify the top 25 or 30 companies with the highest risk return.”

For example, he said that companies such as chipmaker TSM.US, Indian consumer goods company Titan Co., and São Paulo-based Nubank often have consistent characteristics such as good governance, strong market share growth potential, and high return on capital.

While many investors diversify their investments to reduce risk and rely on tracking benchmark indices, Marshall-Lee said this practice actually increases risk. For example, just before the Russian-Ukrainian war broke out in 2022, his fund exited Russia's position because the focus was on “avoiding permanent capital losses,” and the fund estimated that the probability of losing all funds in the Russian stock market from then on was 30%.

Purposeful stock selection

Globally, he avoided most of the more than 4,000 listed companies in emerging markets and bought around 30 shares out of 300 investable stocks. “Surprisingly, most emerging market equity portfolios are similar to each other, particularly the top 10 stocks in emerging market funds — all holding Samsung and large benchmark stocks.”

Marshall-Lee manages two funds with the same emerging market strategy and manages $0.33 billion of capital. This is a continuation of his $3.5 billion strategy from 2011 to 2020 when he left Newton Asset Management (Newton Asset Management). He founded the boutique Cusana Capital in 2022 with Jos Trusted (former Odey Asset Management manager). The fund is supported by Sector Asset Management, one of Norway's largest independent investment companies.

The fund manager refuted popular belief that Trump's election meant investors should reduce their exposure to emerging market stocks. He said the general market logic could prove completely wrong, just like when Trump was first elected at the end of 2016.

As of now, emerging market assets have declined due to the strengthening of the US dollar, rising US bond yields, and the sell-off in Asian stock markets. The benchmark index fell 2.2% in November, while the S&P 500 index rose 3.7%. This has brought the performance gap between the two asset classes to record levels.

Some competitors are boosting returns by adding globally active US companies to their emerging market equity funds, and Marshall-Lee's guidelines require 100% of the stocks in their portfolios to be emerging market-driven stocks, which means that either they are listed or registered in emerging markets, or more than 50% of profits, assets, or revenue come from emerging markets.

Nvidia previously met the 50% emerging market standards described above, so Marshall-Lee bought the stock in early 2023. He sold the shares at 370% profit in June 2024, when the company's segmented data disclosure revealed that it no longer met this standard. Shares registered in Hong Kong, China contributed about 20% of this year's return, he said.

Geographically, Marshall-Lee's biggest exposure is in Asia, and he is optimistic about “rapidly growing domestic companies in the Indian and ASEAN markets.” Over the past 13 years, 30% or more of his portfolio has been in India, focusing on consumer-centric businesses like Titan. The fund manager said, “We made about 14 times more money on this stock. The risk is relatively low, but the rewards are very high.”

Another 10% was allocated to Vietnam and about 10% to Indonesia. In China, Marshall-Lee is optimistic about electric vehicle battery companies. These companies are often led by founders and bear their own profits and losses; Marshall-Lee also owns some local Chinese cosmetics companies, which are seizing market share from international brands.

The portfolio manager declined to reveal his favorite stocks, but said that over the past 12 months, his fund has held shares in companies such as Varun Beverages, Central Depository Services India Ltd, and Sea Ltd.

Outside of Asia, he said, Turkey offers potential opportunities with improved economic management, and although he has invested relatively little in Latin America, he is very interested in Argentina. He said, “When you get out of hyperinflation, there are quite a few double risks, but when your economy is basically penetrated with zero credit, the potential is huge. We're not currently investing there, but it's definitely a market worth watching.”