Neuberger Berman launches emerging markets equity fund

Neuberger Berman has launched an emerging markets equity fund in its Ucits III fund umbrella, the Neuberger Berman Investment Fund.

Conrad Saldanha
Conrad Saldanha

Managed by Conrad Saldanha, the Neuberger Berman Emerging Markets Equity fund aims to deliver long-term capital growth by investing in emerging markets.

Neuberger Berman has run an identical product as a mutual fund in America since October 2008. The decision to launch the Ucits fund was made to meet increased demand from European and Japanese investors.

The fund, which officially launched yesterday, is managed as a long-only equity fund. All investments are unhedged to allow Saldanha and his investors to take advantage of currency movements.

His focus is on companies that derive their earnings domestically. In emerging markets, those companies often have high growth rates, are less cyclical and are less dependent on the global economy than large caps. Many such companies sit in the small and mid cap space — that is companies with a capitalisation of less than $5 billion (£3.14 billion). (article continues below)

This is why about half of the portfolio is currently invested in small- and mid-caps, significantly more than in the fund’s benchmark.

When selecting individual holdings for the portfolio, Saldanha and his team screen an investment universe of 12,000 emerging markets companies. Initially, they look at high return on equity, cash flow and a low leverage.

Having narrowed the investment universe down to 400 companies, they search for those that trade at a discount and meet their qualitative criteria.

Normally, the portfolio will have about 90 stocks. Saldanha aims to have a portfolio that is diversified by sector and country yet he does make calls on certain sectors and countries. The biggest sector overweights, for example, are currently healthcare and industrials. In contrast, the biggest sector underweight are financials.

Saldanha and his team screen an investment universe of 12,000 emerging markets companies

At a country level, the fund has larger-than-usual allocations to smaller countries such as Turkey and the Philippines. Saldanha and his team also find compelling investment opportunities in China and India.

Among one of Saldanha highest conviction holdings is Top Glove, a manufacturer and exporter of latex examination and surgical gloves. Hyundai Mobis, a Korea-based manufacturer that provides in the provision of automobile components, and International Container Terminal Services, a port management company in the Philippines, are two other high conviction holdings.

Up to 20% of the portfolio can be invested in non-emerging markets, which include frontier markets and companies listed in developed markets that derive their business from emerging markets.

Pacific Rubiales Energy, a Canadian and Colombian-listed producer of oil and natural gas, is such an example. Its major listing is in Canada, although it is one of the largest independent oil and gas exploration and production companies in Columbia.

An institutional Japanese investor approached Neuberger Berman six months ago about seeding the fund with a double-digit million dollar investment. The group expects future inflows from a broad mix of institutional and intermediary investors.

Note: This story was updated at 4.01pm.