Fiera Capital: Actively Seeking Alpha in the World’s Smaller Emerging & Frontier Markets
Dominic Bokor-Ingram of Fiera Capital
May 27, 2021
What are the implications for investors of the evolving concentration of the MSCI Global Emerging Market index, driven by the growth of China as it hurtles towards overtaking the US as the world’s largest economy by 2028? China was just 18% of the EM Index in 2014, is already 40% and will represent more than 50% within a few years. With the simultaneous rapid growth of the economies and capital markets of leading regional economies such as Korea, Taiwan and India, the top seven global emerging markets now account for 86% of the index, and the smallest 20 EMs are just 14%. But for Fiera, therein lies the opportunity, as their diminishing role in the index coupled with regulatory and other changes afoot have left these much smaller markets increasingly under-researched and under-owned. In our Hubbis event on Wednesday 2nd June 3.00pm-4.00pm HKT / SGT in collaboration with Fiera Capital, Dominic Bokor-Ingram, co-head of the Fiera frontier markets team, will highlight the structure and attractions of the new Fiera Smaller Emerging Markets Opportunities Strategy which they launched in January, and that has been designed to capitalise on alpha generation in 50-65 portfolio holdings across those 20 EM countries.
CLICK HERE to register for the event.
Fiera Capital Corporation is a Canadian independent asset management firm with a growing global presence and approximately USD 136.7 billion in AUM. The firm aims to deliver customised multi-asset solutions across public and private market asset classes to institutional, financial intermediary and private wealth clients across North America, Europe and key markets in Asia.
The Hubbis/Fiera Capital event on June 2 will be led by Dominic Bokor-Ingram, Senior Portfolio Manager, Frontier Markets at Fiera Capital. Dominic sits in London and is co-Portfolio Manager of the firm’s Frontier Markets and MENA Strategies, as well as this latest Smaller Emerging Markets Opportunities Strategy (henceforth the referred to as SEMS).
Fiera’s deep experience
Dominic himself has more than 30 years of direct experience, having previously held a series of senior positions at Morgan Stanley, Goldman Sachs and, from 2006, Renaissance Capital, the EMEA investment bank operating in high opportunity emerging and frontier markets. During those 30 years, he also worked from 1995 to 2002 at Regent Pacific, from which Fiera Capital was demerged.
The Fiera Frontier Markets Strategy has an extremely good 10-year track record of generating alpha using a bottom-up, research-driven and benchmark-agnostic approach to investing. The same methodology is being applied to mine out the opportunities captured in the new Strategy, with the selected holdings coming from the bottom 20 emerging market countries that have become so marginalised within the global EM indices but that offer alpha generation potential delivered from Fiera’s base of strong fundamental research and the team’s experience.
Hands-on active management
In fact, the firm reports that the seven-strong Fiera frontier team had over 1,200 meetings with company managements from their selected emerging and frontier market universe over the last year as they hunted for return amidst a total investment universe that has 19,000 listed stocks and USD1.4 trillion of what their literature describes as ‘liquid’ market capitalisation. The opportunity set excludes the top seven EM countries, namely China, Korea, Taiwan, India, Brazil, South Africa and Russia.
There is considerable synergy between the other EM, MENA and Frontier market strategies Fiera runs, allowing the research to be conducted on an efficient and collaborative basis, leveraging the combined skills and expertise of the seven-strong team at Fiera.
From little acorns…
The SEMS Strategy aims to hold between 50 and 65 stocks, and at 31 March held 61 stocks, and had produced an annualised return of 8.55% since inception in January. The top ten holdings at the same date included stocks from the Philippines, Vietnam, Saudi Arabia, the Czech Republic, Kuwait, Qatar and Kazakhstan.
The timing of the SEMS Strategy is designed to capitalise on what Fiera sees in the markets, as investors have been rotating some of their positions from the larger EM markets towards the less understood markets such as frontier and the smaller EM markets. The thesis that Dominic will present to delegates on June 2 is that deep research and analysis will allow the Strategy to take advantage of the inefficiencies in these smaller emerging markets.
Exploiting inefficiencies
The firm reports that the inefficiencies have been exacerbated by regulatory changes, including the widespread effect of the MIFID II regulations, which has impacted the sell-side of the major global banks and brokerages. The situation as it stands, therefore, provides considerably more alpha-generating potential from inefficient stock pricing, which can be exploited by Fiera’s active, research-led approach, which is jointly led by Stefan Bottcher ad co-portfolio manager of the new strategy.
There is no doubt in the minds of Dominic and his colleagues at Fiera that as most global emerging market fund managers are having to concentrate most of their resources on ensuring the larger countries in the Global MSCI EM Index correct, they will have less and less time to analyse and participate in these smaller markets. It is understandable that as research and focus both diminish for the major index players, so there is an ever-larger pool of companies where alpha-generating opportunities exist.
The ‘why’ and the ‘how’
During the June 2 event, Dominic will put all this into context and offer many valuable insights into the thesis for the Strategy and the team’s approach to delivering alpha generation from the target universe. He will also offer some detail on the historical trends that are important to understand, as the past decade, in particular, has seen some significant changes to the EM investment landscape, both in terms of the shifting geographical bias and the types of investors that make up the shareholder bases of many emerging market companies.
The power of the passive index ‘trackers’
The first paradigm shift which has affected the equity universe globally has been the significant move by international investors into passively managed funds. In the year 2000, passive holdings accounted for just 1% of the foreign money in emerging markets (for publicly available funds), according to an insight released by Dominic earlier this year. View the insight at https://uk.fieracapital.com/en/insights/. The same insight found that this rose to around 10% by 2006 and almost 37% today, worth over USD 800 billion, and concludes that the size and weight of passive money are therefore crucial to the evolution of emerging markets indices as this money is obliged to automatically follow any changes or reorganisations.
Evolving economies and markets
Secondly, he explained that the shape of the emerging market Indices had altered dramatically over the last few years in terms of regional weightings, and there have been some very large changes in country weights, as well as significant increases in the free floats of many leading corporations in those major EM market, which is how the Global MSCI EM Index shifted so dramatically to 86%/14% in favour of just seven top EM countries, those excluded from the SEMS strategy.
Uncovering the potential via active strategies
Dominic will therefore focus on exactly why and how smart active strategies can be employed to extra alpha from these numerous neglected markets and stocks. He will elaborate on how Fiera pursues a very active strategy, with a strong focus on bottom-up investing and top-down analysis providing a negative country screen. He will report on why the Strategy is benchmark agnostic with a focus on domestic growth opportunities in economies that are growing strongly due to reform processes enacted by the local administrations. And he will highlight how the alpha-generating potential from inefficient stock pricing in frontier and emerging markets has been well demonstrated by Fiera’s investment team over the last ten years and beyond.
Senior Portfolio Manager, Frontier Markets at Fiera Capital
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