Genesis Emerging Markets appoints Fidelity as new manager
Genesis Emerging Markets appoints Fidelity as new manager – The Read our guide to Boards and Directors" class="glossary_term">advice of Genesis Emerging Markets (GSS) has completed its in-depth review of its management arrangements and has revealed its intention to appoint Fidelity International as its new manager and to rename the trust to Fidelity Emerging Markets. The appointed managers will be Nick Price and Chris Tennant.
The investment policy will also be updated to allow investment in a diversified portfolio wallet shares, equity-linked securities and derivative instruments offering exposure to companies, whether based or listed in emerging markets or whose assets, operations, income or income are derived primarily from emerging markets. This can extend to all cap sizes, both listed and unlisted. There will also be assignificant reduction in management fees the existing 0.9% of the net asset value at 0.6% and a commitment to both a performance-triggered takeover bid in 2026 and the introduction of a continuation vote for the company to be held every five years.
Although the council believes that many shareholders will want to continue their investment in the business. he will also bid for up to 25% of the outstanding shares with a 2% discount on the current price NAV per share, so shareholders wishing to make part or even all of their investment will be able to do so.
These proposals will each be subject to shareholder and applicable regulatory approvals. The company intends to seek shareholder approval at an extraordinary general meeting to be held in August this year. The appointment of Fidelity International will be conditional on the approval of the new investment policy and the name change will be conditional on the entry into force of the appointment of Fidelity International. However, the public tender offer will not be conditional on the approval of these two factors.
The Board of Directors thanked Genesis Investment Management for its “commitment and hard work over the past three decades”. After extensive discussions with Genesis, the Board of Directors fully understands and appreciates Genesis’ emphasis on its institutional mandates.
[This is great for Fidelity, who adds another mandate to its investment trust offerings as well as for the trust and its shareholders. The board has made a good choice in an investment manager which has a strong global brand and solid emerging markets team while long-standing manager Nick Price, who launched the group’s first international emerging EMEA portfolio in 2005, has a decent track record having returned 275% since he first took on the Fidelity Emerging Europe Middle East & Africa fund. He also co-manages five other EM mandates. The proposed fee reduction and ongoing discount control mechanisms will also be very welcome for shareholders. The trust has performed well over the long term, delivering a huge 1032% over the past twenty years. Over one year, though performance is still positive with a return of 30%, this is behind its AIC Global Emerging Markets sector average return of 35%.]
Proposed investment approach:
Fidelity International plans to adopt a global all-cap strategy in emerging markets with increased investment powers that seeks to exploit a wide range of opportunities. The managers adopt an active ‘extension’ investment style, benefiting from an extended set of tools compared to a traditional long-only equity fund:
- Stocks: primarily invested in equity securities that offer a significant degree of absolute upside over the specific target price of each stock. Portfolio managers will look for opportunities across the spectrum of market capitalizations, geographies and consider listed companies, IPOs and unlisted investments.
- Short extensions: offers the possibility of accessing positive returns from securities perceived to be exposed to significant declines in absolute share prices through the use of short positions in equity derivatives.
- Long extensions: offers the possibility of deploying additional long exposure to equities through the use of equity derivatives in order to further improve the performance of the equities with the greatest upside potential, and also to compensate for the reduction in the exposure to equities introduced by the fund’s short positions.
- Other instruments: access other instruments to make the most of perceived sources of return and control risk. These instruments include stock option positions allowing both the entry of options premium as well as controlling the risks active in the portfolio.
Fidelity International believes that many companies in emerging markets can sustain high levels of economic growth for years to come, thanks to attractive demographics, immature markets, an abundance of untapped natural resources and generally low levels of debt. However, while these positive attributes provide a fertile environment for companies to grow their profits, it is essential to ensure that every company in which Fidelity International invests can generate superior and sustainable returns on the assets that allow them to finance growth. of their business, to withstand competitive pressures and to obtain attractive returns for minority shareholders.
With this in mind, Fidelity International defines high quality companies as those that exhibit:
- Quality – high quality, well capitalized companies capable of delivering superior returns on assets, and where strong EBIT (earnings before interest and tax), taking off tax payable and deducting capital expenditure and any change to working capital. For an ordinary shareholder, it'll be the same calculation but taking off interest cost as well. " class="glossary_term">free movement of capital production can be used either to self-finance future growth or to pay dividends to shareholders
- Consistency of returns – dominant companies that can maintain superior levels of growth and profitability resulting from a sustainable competitive advantage, such as market share, technology or cost leadership; companies with a strong track record of attractive total returns to shareholders over time
- Reasonable price – attractive valuations that underestimate the intrinsic value of a business. Target prices are determined for each stock considered for the portfolio, reflecting the sustainable level of earning capacity of each company throughout the economic cycle and an appropriate valuation multiple.
Conversely, it is the weaker peers who are unable to compete with the stronger franchises that are likely to fall apart. By using short positions, these weaker companies are some of the additional investment opportunities that Fidelity International can take advantage of, as an additional source of performance.
GSS: Genesis Emerging Markets appoints Fidelity as new manager
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