This EM Fund Beats the U.S. Stock Market And 97% of Peers In Returns! Check Out How It Selects Its Stocks
3min read Rob Marshall-Lee, founding partner and Chief Investment Officer of Cusana Capital LLP, is one of the few fund managers who have achieved returns similar to the U.S. stock market by investing in emerging market companies. According to the latest 13F data, his emerging market equity fund has brought investors a 37% return over the past 12 months, surpassing the S&P 500 Index and 97% of peers. Notably, among the top 20 companies with the largest weight in the benchmark MSCI Emerging Markets Index, he only holds one company and attributes his outstanding performance to this.
Marshall-Lee pointed out that the returns from a select group of strong stocks have been undermined by the majority of companies in emerging markets. He stated that it is best to have a concentrated portfolio and has selected based on a model of the seven giants in the U.S. stock market.
The fund manager said in an interview, In emerging markets, the top 5% of stocks by number generate 83% of net wealth creation, while 95% destroyed value in aggregate. You need to avoid the 95% and focus all your efforts on finding that 5%. Within that, we try to identify just the top 25 or 30 companies with the best risk-reward.
For example, he said, companies such as chip manufacturer Taiwan Semiconductor Manufacturing Company (TSM.US), Indian consumer goods company Titan Co., and São Paulo-based NuBank tend to have consistent characteristics such as good governance, strong market share growth potential, and high capital return rates.
While many investors diversify to reduce risk and rely on tracking benchmark indices, Marshall-Lee said that this approach actually increases risk, says Marshall-Lee.
Globally, he avoids most of the more than 4,000 emerging market listed companies and buys about 30 stocks from 300 investable stocks. It's amazing how much most EM equity portfolios look like each other, particularly the top 10 stocks in EM funds — everyone owns Samsung and the large benchmark stocks.
Marshall-Lee manages two funds with the same emerging market strategy, managing $330 million in funds, which is a continuation of the $3.5 billion strategy he managed from 2011 to 2020 when he left Newton Asset Management. He co-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.
It is widely believed that Trump's election means investors should reduce their exposure to emerging market stocks, but the fund manager refuted this view. He said that the general market logic may prove to be completely wrong, just as it was at the end of 2016 when Trump was first elected.
For now, a stronger U.S. dollar, rising U.S. bond yields, and the sell-off in Asian stocks have led to a pullback in emerging market assets, with the benchmark index down 2.2% in November, while the S&P 500 Index rose 3.7%. This has created a record performance gap between the two asset classes.
Some competitors have improved returns by adding U.S. companies active globally to emerging market stock funds, while Marshall-Lee's guidelines require that 100% of the stocks in his portfolio must be emerging market-driven, meaning they are either listed, registered, or have more than 50% of profits, assets, or revenues from emerging markets.
Nvidia used to meet the above 50% emerging market standard, so Marshall-Lee bought the stock at the beginning of 2023. He sold these stocks in June 2024 at a profit of 370% when the company's segment data disclosed that it no longer met this standard. He said that stocks registered in Hong Kong, China, contributed about 20% of the return this year.
Geographically, Marshall-Lee's largest exposure is in Asia, where he is bullish on the rapid growth of domestic enterprises in India and ASEAN markets. For the past 13 years, 30% or more of his portfolio has been in India, focusing on consumer-centric companies like Titan. The fund manager said, We have made about 14 times our money on this stock. The risk is relatively low, but the return is very high.
Another 10% is allocated to Vietnam, and about 10% to Indonesia. In China, Marshall-Lee is optimistic about electric vehicle battery companies, which are often led by founders and self-sufficient; Marshall-Lee also owns some local Chinese cosmetic companies that are capturing market share from international brands.
The portfolio manager refused to disclose 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.
He said that outside of Asia, Turkey offers potential opportunities with improved economic management, and although he has relatively few investments in Latin America, he is interested in Argentina. He said, There are quite binary risks when you are coming out of hyperinflation, but when you've got an economy with basically zero credit penetration, the potential is very substantial, we aren't invested there at the moment, but it is certainly a market worth monitoring.