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Investment Uncovered: Newton Investment Management on the emerging markets revolution

Global Series: ChinaNewton Investment Management’s Robert Marshall-Lee: ‘If we have a trade war, you’ll have a recession everywhere’

Looking into the future does not always have to be about making predictions. This is the thinking behind Robert Marshall-Lee and his team at Newton Investment Management when targeting returns of companies.

For a concentrated emerging market fund, the importance of stock picking wins over the political noise and negative stories, says Marshall-Lee, who has been investing in the region for the past seven years.

He says markets – including emerging markets – are seeing another industrial revolution led by technology which politicians cannot “reverse”.

To benefit from this change, he invests in 15 different themes and avoids chasing the short-term variations of the market.

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One of the areas he invests in is electronic vehicles, but with a view on how companies will develop in the future rather than looking at how they are currently performing.

Marshall-Lee says: “We need to think ahead and about how companies will do ahead of time. So rather than buying Tesla, we are more interested in battery companies in Korea like Samsung SDI, which is the biggest position in our fund right now. Lithium companies in Chile and Argentina were great performers last year. [They are] having a bit of correction this year but over the coming years we need five, 10, or 20 times as much lithium as now.”

Before launching the fund in 2011, Marshall-Lee was an analyst at Newton. Prior to his work as a fund manager, he was a chartered accountant for Deloitte for four years. He says being a trained accountant means he can go through a company’s account in half an hour, “tear them apart” and know what is going on.

The £245m Newton Global Emerging Market fund invests in 50 stocks, and 45 per cent of it is invested in the top 10 holdings. However, Marshall-Lee says the fund is very different from the index, which he claims has too much state control and is focused on firms that are not making investments.

He says: “The index is backward-looking; it is full of oil companies, hard metal mining companies and state-owned banks – 25 per cent of the MSCI Emerging Market index is state-controlled and we have zero in that. The index also has a lot of tech hardware businesses, which are not particularly attractive.”

In its current form, the fund has 30 per cent invested in China, and 25 per cent in India. Marshall-Lee says that in China, the fund has always owned education, healthcare and internet companies, such as Tencent, while in contrast, the Chinese index is mostly made of domestic banks.

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Marshall-Lee says: “If you invested in Tencent in 2008, as we did, you would have made 50 times your money in Chinese internet. Over the same time, the stock market went up maybe 30 per cent. These things get hidden at index level and strategists and commentators often focus on the index and fail to grasp some of these factors, and that is what we are here for.”

The £245m Newton Global Emerging Market fund invests in 50 stocks; 45 per cent of it is invested in the top 10 holdings

Marshall-Lee expects a slowdown in the Chinese economy but says that, on the other hand, the consumer services industry is growing very rapidly. He says: “Emerging markets are highly volatile. You had a lot of growth in China but the stock market has not been as good as that because a lot of EM companies have not been very profitable.”

Like in China, the investment case of the Newton fund in India revolves around consumer staples and consumer discretionary names. Marshall-Lee says the very fast-growing population and a low debt penetration make India attractive and “a rare case” compared with other regions worldwide.

He says: “I still think India has got better prospects than any large economy over the next five to 10 years, and people recognise that prime minister Narendra Modi’s economic policy, such as demonetisation and labour reforms, are improving the efficiency of the economy dramatically.”

Elsewhere, the headlines about the prospect of a trade war between the US and countries like China are not a cause of concern for Marshall-Lee.

He believes the UK could be the hardest hit by a potential trade
crisis. Marshall-Lee says: “You’ll get higher inflation, rates will go up, you’ll have a house price collapse, so we believe these are noises rather than anything else.

“If we have a trade war, you’ll have a recession everywhere, including the US and the UK. Emerging market firms are not all functions of the US.”

Compared with the headwinds in emerging markets over the recent past, where the slump in oil price was weighing heavily on currencies, the current outlook of the region seems more positive.

Marshall-Lee says: “Broadly, emerging market currencies look very cheap now, as indicated by current accounts going from deficit to surplus, and valuations are very cheap. Using the Shiller ratio, emerging markets look very cheap compared to the US, in particular, and to bonds in general.”

As of 1 May, the Newton Global Emerging Market fund returned 39.8 per cent against the IA Global Emerging Markets sector, which returned 31.1 per cent over three years according to FE.


2011 – present: Emerging market equity fund manager at Newton Investment Management

2008 – 2011: Global equity fund manager at Newton Investment Management

1999-2008: Analyst at Newton Investment Management

1995-1999: Accountant at Deloitte


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