Over the past couple of months, Oyster's Claire Shaw has actively increased the fund's exposure to emerging markets as it is one of the most out of favour themes in the market right now.
We look to exploit short-term fear in certain sectors and geographies to buy solid companies at the point of maximum pessimism.
One such example is UK-based Ashmore Group, an asset management firm specialising in emerging market debt. Due to souring emerging market sentiment, Ashmore's share price has been hit hard.
The company's attractions include strong performance across all its funds over three years, strong management, £365m in cash on the balance sheet, and it is trading on a very cheap price – it is currently on a double digit free cashflow yield, and 7% dividend yield.
I believe Ashmore is being punished on sentiment as opposed to fundamentals. The market is not appreciating the fact that 80% of the firm's client base is institutional, which is a stickier investor base, as well as the long-term structural growth potential in emerging markets as an asset class.
The second company is UK-based Aggreko, a supplier of temporary power generating equipment that derives more than 50% of revenues from emerging markets.
Companies in developing markets use Aggreko's equipment because domestic electricity grids are often inadequate. However, emerging markets' economic growth has been weak, so the need for temporary power is down.
As a result, the company's share price has fallen over 50% compared to two years ago. However, this is a very high quality business – Aggreko has a 40% global market share, is the lowest-cost manufacturer in the industry, and as a result makes very high margins and returns.
Combined with a solid balance sheet, it is currently a very attractive opportunity given the substantial free cashflow Aggreko generates.
Claire Shaw is a manager on the OYSTER European Mid & Small Cap Opportunities fund
• Pricing power in the mid-cap space will continue to be a significant long-term driver of profit growth
One such example is UK-based Ashmore Group, an asset management firm specialising in emerging market debt. Due to souring emerging market sentiment, Ashmore's share price has been hit hard.
The company's attractions include strong performance across all its funds over three years, strong management, £365m in cash on the balance sheet, and it is trading on a very cheap price – it is currently on a double digit free cashflow yield, and 7% dividend yield.
I believe Ashmore is being punished on sentiment as opposed to fundamentals. The market is not appreciating the fact that 80% of the firm's client base is institutional, which is a stickier investor base, as well as the long-term structural growth potential in emerging markets as an asset class.
The second company is UK-based Aggreko, a supplier of temporary power generating equipment that derives more than 50% of revenues from emerging markets.
Companies in developing markets use Aggreko's equipment because domestic electricity grids are often inadequate. However, emerging markets' economic growth has been weak, so the need for temporary power is down.
As a result, the company's share price has fallen over 50% compared to two years ago. However, this is a very high quality business – Aggreko has a 40% global market share, is the lowest-cost manufacturer in the industry, and as a result makes very high margins and returns.
Combined with a solid balance sheet, it is currently a very attractive opportunity given the substantial free cashflow Aggreko generates.
Claire Shaw is a manager on the OYSTER European Mid & Small Cap Opportunities fund
Bull Points
• Mid and small caps more geared into domestic European recovery• Pricing power in the mid-cap space will continue to be a significant long-term driver of profit growth
Bear Point
• Fears around the Chinese slowdown will continue to weigh on investor sentiment as well emerging market weakness and Brexit
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