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Aubrey Global Emerging Markets Opportunities
This fund invests in companies offering products and services to the upwardly mobile, ambitious and aspirational population centres which account for over 70% of the world’s growth. Preferred areas include the travel, education, healthcare and e-commerce sectors, and there is a focus on firms which either have dominant or first-mover advantage. These companies will also have repeatable business models, low levels of debt and be realising attractive cash generation.
Our opinion
Aubrey Global Emerging Markets Opportunities is set up explicitly to take advantage of the fast-growing emerging market consumer opportunity. As such, it has a refreshingly clear approach, guided by a simple but effective incorporation of political and economic factors. We also like that the manager is happy to not own certain sectors and regions if he doesn’t like them.
Company description
Aubrey Capital Management was founded in 2006. It is an Edinburgh-based boutique with a strong active management approach, specialising in Global, European and Emerging Markets with c.£1bn under management. It is privately owned, with the majority of shares owned by its employees. There are three senior managers at the firm, each with over 30 years' experience. They have a collaborative approach, sharing ideas amongst the team and strategies to help with the success of the whole firm.
Fund manager
The fund’s lead manager is Andrew Dalrymple who is the Founder, Director and CIO of Aubrey. Andrew is a Cambridge University graduate who began his career at Cazenove & Co before joining James Capel in 1987. There, he transferred to the Hong Kong office as an Asian specialist before taking a similar role at UBS Warburg. He subsequently moved to Stewart Ivory (now FSSA) in 1998 where he established the Global Opportunities fund. It was one of the top performers in its sector over multiple time periods under his tenure.
Investment process
Aubrey Global Emerging Markets Opportunities’ philosophy is based around the growing consumer opportunity in the emerging market regions, which incorporates 40% of global economy and 70% of its growth. These consumers are ambitious, upwardly mobile, and aspirational members of the population. The manager likes dominant or first mover companies, preferring ‘local champions’ to regional versions of existing multinational firms. That being said, these companies often have business models copied from those in the West, with repeatable businesses able to generate cash.
The fund has an established watchlist of around 300 companies, built from Andrew’s and the team’s experience. This list is added to from company visits, seeing peers of existing firms and IPOs. The team also undertakes some quantitative screening for key metrics around cash generation for anything that may have been overlooked.
These ideas then go through a two part company analysis. The first of these is to forecast financial metrics. The manager will only forecast these numbers forward for two years to ensure accuracy, with a strong focus on how and where the company generates cash.
The second part is a qualitative assessment. The team will look at the quality of the business, its position as a market leader, the company’s track record at executing its strategy and what competitive advantage it has. This thesis is verified in meetings with the company. Due to Andrew’s experience and Aubrey’s proactiveness in reaching out to firms, they get very good access to key people.
The best companies from this analysis creates a focused list of around 150 stocks - approximately 10 stocks per country in the benchmark. This process is often quite steady, and it may take up to six weeks to form a view on a stock. While the numbers can be prepared in a day, the team wants to spend time incorporating its opinion. The interaction with the company is key to building confidence in the investment case.
This list is then looked at through the lens of a macro overlay, which includes factors such as the political environment and changes in economic performance. This helps reinforce the investment case in a stock, which leads to a final portfolio of around 30-50 holdings.
ESG
ESG - Integrated
Aubrey considers ESG issues to be an integral part of the investment process. While the managers are studying their individual companies, analyst conduct in-depth analysis of ESG criteria and engage with management teams where they see risks. They have an internal bespoke framework to create scores for each investment and potential portfolio company. These are each given a risk score and weighted to create an overall portfolio score. Even when invested, the manager and analysts will engage with their companies to improve practices where they see weaknesses or risks, aiming to continually improve the ESG profile of the fund.
Aubrey bases its measures for ESG analysis on the United Nations Global Compact which provides four specific themes; human rights, labour rights, environmental concerns and anti-corruption. All this analysis operates in tandem with the qualitative assessment work on a company, and helps to build up a broader picture of the stock alongside its business operations and financial strength.
Risk
Whilst not exclusionary, the preference for firms tapped into the growing middle classes means that large areas of the universe are overlooked as they don’t satisfy this trend. The maximum position size will be 7%, though in practice the manager will rarely go above 4-5% and will start taking profit at this point. A minimum position will be approximately 1.5%. The top ten positions will make up approximately a third of the fund, which will usually be fully invested.
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