Looking towards the next decade, the prospects for countries in Emerging Markets (EM) are not uniformly bright. New challenges have arisen, such as the rise of protectionism and the uncertainty about how poor countries will recover from COVID-19. Nevertheless, there are a multitude of opportunities for active investors in EM.
The crucial difference from a long-term investment perspective, however, will be to identify the leaders and winners and avoid the rest. The leaders will be those companies which, by virtue of their intrinsic competitive advantages, will be able to deliver above-industry average growth and consequently stock-price performance. We also believe the growing trend of ESG investing places companies with a competitive edge in the field of sustainability and an above average ESG profile in a good position to deliver above average industry growth as well. That’s why we have decided to combine the attractive long-term return opportunities that emerging markets equities offer with a strict sustainability approach.
Comprehensive Research with Strong Focus on High Quality
Our UBS Emerging Markets Sustainable Leaders strategy seeks to capture the best ideas of analysts and portfolio managers using a disciplined, bottom-up investment process. This process begins with in-depth research conducted by analysts who are sector specialists. Internally generated research, focused on longer term value drivers at the company, industry and country level, is used to estimate fundamental value for stocks, upon which investment decisions are made.Our objective is to develop unique insights that enable us to have a clearly differentiated investment thesis against the consensus in the market. An important part of this is our ability to seek out unconventional sources of information. We cover all sectors and the majority of the market capitalization within each of these sectors. This broad coverage enables us to identify both overvalued and undervalued securities.
ESG Criteria in Emerging Markets – from nice to have to Standard
In our Emerging Markets Sustainability Leaders strategy, sustainability is an explicit part of the investment guidelines, universe, selection and/or investment process. The strategy aims to have better ESG metrics in aggregate than the benchmark.
The research team seeks to capture the sustainability profile of a company through our proprietary Quality Checklist.In addition, our ESG Risk Dashboard combines scores and data points from a number of external research providers together with a UBS proprietary ESG score to identify companies with elevated sustainability risks. Collectively, these inputs lead to an ESG Risk Signal that flags companies with high ESG risks. The Emerging Markets Sustainable Leaders strategy excludes high and severe rated stocks.Portfolio managers and analysts work in collaboration with our Sustainable and Impact Investing (“SI”) Research team to complement the Dashboard with qualitative insights.
Investment Professionals with Longstanding Experience
The strategy is managed by a dedicated, stable and experienced team. Decisions are made on a team basis by the Emerging Markets Equity Strategy Committee which is comprised of five Senior Portfolio Managers and a Senior Equity Specialist, all of whom have been working together for more than a decade. They are supported by a large team of highly experienced industry analysts.
USP of UBS Emerging Markets Sustainable Leaders Strategy
Sustainable Leaders are companies that have a sustainable competitive edge with the ability to deliver above industry growth. We believe that such companies should be in a position to potentially outperform over the long-term. The UBS Emerging Markets Sustainable Leaders strategy is a High Conviction Portfolio with a focus on Investing in the Industry Leaders of Structural & Sustainable Trends and Themes such as digital transformation, healthcare, evolution of the EM consumer, climate change or de-globalization. The strategy’s alpha target is 4% p.a. gross of fees over a full market cycle. The investment team has a strong track record of managing EM, Asia and China equities for over 20 years.