Manning & Napier’s International Series Fund is a go-anywhere vehicle that seeks out unique investment opportunities across the globe that its management team believes will flourish under prevailing country-wide themes.
Currently, the three member team of Ben Rozin, Marc Tommasi and Sidharth Abrol, are most excited about India, a country that Rozin said is going through a “watershed moment.”
“We had been following India for a while but we got very excited after Narendra Modi took over as prime minister,” Rozin said. “Modi is a reformer, we thought, he’s a doer and not a bureaucrat, and so we basically looked at the Indian market and saw it as a place where policy development is better than in other emerging markets and a market we could benefit from.”
The fund initiated investments in several sectors of the Indian economy, Rozin said, which span the gamut from infrastructure and agriculture to financial services and consumer industries. India is now the largest emerging market holding in the International Series Fund and it is exemplary of how the fund invests across the world.
“We start by looking at what sort of macro changes are going on in different places and then we drill down to the level of specific companies that have a potential for upside from those changes,” Rozin said. “In India, for instance, there’s reform going on in many areas, notably the power sector, and so we look for those companies that are well exposed to those changes and learn their bottom-up stories.”
Ultimately, the fund looks to hold names that have the potential to benefit from both macro themes and individual company dynamics. But valuation is also an important factor, Rozin said, which is why the team has cut down its exposure to Europe, an area they’d overweighted in 2011 (“we saw a sovereign debt crisis coming but we thought the tools needed to solve it were there,” Rozin said), as prices have risen. “During the Taper Tantrum, we started to see good valuations in emerging markets so that’s when we moved to overweight that sector,” he said.
The International Series Fund now has a 29% weighting toward emerging markets compared to the 20% dedicated to the asset class by the corresponding benchmark, and after India, the fund’s biggest exposure is to Brazil.
Latin America’s largest economy hasn’t been an investor favorite by any stretch of the imagination and Rozin also admits to having approached it with care. However, “though we have been cautious about the way in which Dilma Roussef has managed the economy, Brazil is also a big growth story and there are lots of companies there with secular growth winds that are trading at interesting valuations,” he says. “There has been a pull back in Brazil but there are opportunities in a variety of sectors like healthcare, education, financial services, national resources and so on, so though we’re uncomfortable about being overweight in Brazil, there are companies there that we like.”
The fund is also fairly well invested in Mexico despite finding stocks there to be fully valued. However, “we’re looking at better reform momentum in Mexico and that will broaden out companies that have dominant market positions and good earnings drivers,” Rozin said.
This year, emerging markets will continue to be an important component of the $650 million International Series Fund. Rising incomes, the growth of the consumer economy and the underpenetration of consumer goods all make for extremely positive demographics, Rozin said, as does the fact that most of the emerging markets are still in need of roads, power, water services, distribution capabilities, warehouses and so on.
“We also have our eye on themes like automation, which we believe will grow as labor costs rise, and we like companies that are well positioned to take market share, that can innovate and have good balance sheets,” he said.
Manning & Napier manages a total of around $15 billion in international equities.