Yesterday I observed that it is becoming increasingly hard to mount an enthusiastic defence of emerging market assets. The one exception in my view is Russia, about which I have become increasingly bullish. I’ll ignore my long list of worries about politics and simply observe that Russian equities look terrifically cheap even if we assume that oil prices will remain becalmed for many years, which is I think highly unlikely.
Traditionally I have tended to suggest that the JPMorgan investment trust (ticker JRS) is the best route into Russian equities, but I think a strong runner up is Raven Property Group, which is quoted on the London exchange. Shares in this specialist fund have had a terrible time, not helped by being dragged into the Woodford/Barnett ‘affair’. Numbers have also been hit by the Covid pandemic, which hit Russia hard. But I sense those are all in the price now and we could be due a cautious recovery in Raven’s share price, with a target of 40p by the beginning of 2021.
If you want a good summary of the positive case for Raven then read the paid for research by Edison, available here – https://www.edisongroup.com/publication/positive-developments-obscured-by-fx/27706
This reminds us that as at 30 June 2020, the portfolio comprised c 1.9m sqm of logistics warehouse property (of which c 70% is in the Moscow region) and c 50k sqm of office property in St Petersburg and is valued at £1.3bn. At end H120, the portfolio was 93% let to predominantly large Russian or international companies operating mainly across the retail, distribution, manufacturing and third-party logistics sectors, with e-commerce growing quickly from a small base and representing an increasing share (6% at H120 v 4% at end-FY19).
In simple terms, if you think EM consumers and more particularly EM online consumers are the big story of the next few decades, it seems like Raven is a scaled up way of playing those narratives. The recent numbers also weren’t that bad, though slightly obscured by FX movements. Back in 2019 the NAV was 76p whereas now it is likely to be closer to 44p, and the shares are yielding 7.6% at 30p. The preference shares (RAVP) yield is c 10% – that is I think an even more interesting bet all things considered. Overall, the portfolio LTV is 54%.
Next up I have two fascinating charts from a report by US ETF provider Global X.
The first is a reminder of why I am so long term bullish on the e gaming sector – revenue and margins are high and growing and that is before we head into the next release of the consoles. Sure, plenty of tech is overpriced and failing to produce strong cashflows, but please don’t include the gaming sector in that broadbrush analysis.
The second chart is another reminder that Millennial’s behavioural spending patterns are changing rapidly – and permanently. They’ll shop at home more, exercise at home, use mobile payments, make video calls and WFH. These trends are irreversible and as an investor you need to be on the right side of these trends.
Lastly a reminder of some events I am involved with tomorrow and next week!
Big Call – Emerging Markets
When : 16th September 09:00 to 15:35 UK TIME
More info: https://www.etfstream.com/events/big-call-emerging-markets-2020/
Coronavirus sent shockwaves through the global economy earlier this year with emerging markets bearing the brunt of the impact.
However, as economies begin the re-open, emerging markets offer some fantastic upside potential to investors willing to take the plunge.
This full-day event will take a deep dive into the current state of the emerging market landscape while analysing the different ways investors can gain exposure through the range of European ETFs available.
Here from experts such as KCL’s Kerry Brown, Accenture’s chief economist Mark Purdy and Morningstar’s Hortense Bioy.
Beyond Beta Europe Digital
Europe’s biggest factor investing event
More info : https://www.etfstream.com/events/beyond-beta-europe-digital/
When: 23 – 24 September
The recent coronavirus turmoil gave a fascinating insight into the way different factors behave during periods of market stress. Academically proven factors such as low volatility offered investors unique ways to either exploit alpha and reduce risk through rules-based, systematic strategies.
The heightened volatility has done little to affect investor appetite for smart beta which recently surpassed the $1trn assets mark. Studying how factors performed during this period will be a constant theme throughout the event while there will also be a deep dive into the product innovation taking place in the space.
ESG also came through coronavirus with flying colours as investors continued to pile into sustainable ETFs despite almost all other areas of the market seeing outflows. Why this was and whether there is anything stopping the green revolution will also be analysed.
This digital event will bring together some of the brightest minds from across the quantitative investing landscape to explore a whole range of areas within the smart beta, factor and ESG investing ecosystem.
The likes of Rob Arnott, Elroy Dimson and Société Générale’s Andrew Lapthorne will be speaking so this is not one to miss!
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