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Don’t get bogged down by macro noise, says Vontobel’s Merz

Don’t get bogged down by macro noise, says Vontobel’s Merz

Investors looking to find value in emerging markets should ignore the geopolitical noise, according to Vontobel’s Roger Merz.

Speaking to Citywire Switzerland, Merz, who manages the Vontobel Fund mtx Sustainable Emerging Markets Leaders fund, said there is too much discussion surrounding macro events in emerging markets.

‘There is always a lot of talk about the geopolitical and macro risks when you invest in EM. But at the end of the day, it’s a question of how much cash flow a business generates relative to the assets it needs.

‘As a result of that, we are trying to get less involved in areas where we have no understanding of macro politics and instead we try and invest in areas where we understand the business models.’

Rather than taking macro bets, Merz, who runs the fund alongside AA-rated Thomas Schaffner, said the team gathers company data based on the individual company's return on invested capital.

‘That’s the biggest metric we use, we try to allocate capital where we see the biggest improvement on return invested capital over time.

‘The most challenging thing is to find companies which are reasonably valued, but that might be good quality. Very often it means that higher quality companies - those companies that have a higher competitive advantage – are already well known by the market.’

Merz said this usually means the companies are expensively valued, but added that buying a good asset doesn’t always give you good performance.

With holdings in big Chinese names such as Samsung Electronics (5.6%) and Tencent Holdings (5.4%), Merz said he will only buy companies that the market has discounted as below average, as over time the mean reversion will help deliver a discount.

‘A good asset can be a very bad investment and vice versa, as a bad asset can actually be a very good investment. The trick is to find a good asset but only buy it when the market is discounting it as a bad asset, or as a slightly above or below average asset,’ he added.

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