Mobius (MMIT), the £167m emerging markets smaller companies investment trust, has suffered a setback after investors sold 43.1% of its shares in a three-yearly redemption facility.
Valid redemption requests were received for over 49.7m shares by yesterday’s deadline, said the company, which was co-founded by pioneering emerging markets fund manager Mark Mobius seven years ago.
This means the listed fund, managed by Carlos von Hardenberg at Mobius Capital Partners, will lose around £72m, pushing its market capitalisation below the £100m level, widely viewed as a minimum threshold by institutional investors.
The high level of sales requests is a surprise given the shares traded fairly close to net asset value with a 7% discount that compared favourably to some of its rivals in the Global Emerging Markets (GEM) sector.
However, the manager’s underweight to the rebound in China’s stock market this year may have proved costly, leaving it trailing over over one year with a 6% total shareholder return against the sector’s average 38.2% gain.
That has pushed it down to sixth place in the nine-strong GEM peer group over five years with a total shareholder return of 49.8%. That leaves it behind Templeton Emerging Markets (TEM), which Hardenberg and Mobius previously ran, which has returned just over 62%.
Institutional value investors Weiss Asset Management and City of London Investment Group held nearly a quarter of the shares and would likely have taken the chance to sell their shares at close to NAV. Following his retirement at 87 two years ago, in September Mobius sold the last portion of his previous 14% stake in the trust.
Winterflood analyst Alex Trett said in the short term there could be concerns over the trust exiting some of its illiquid holdings to drum up the cash to redeem the shares. Longer term, however, Mobius’ unique focus on smaller companies should attract investors, saying “unlike many other highly subscribed tender offers, there is no clear or readily available substitute offering a comparable strategy within the investment trust universe.”
Last month Mobius announced it would increase the frequency of its 100% redemption windows, opening them every two years instead of the current three. That raises the risk of another big outflow in 2027 if performance does not improve.
Our view
QuotedData’s head of investment company research James Carthew said: “With less than 5% of its assets in China versus a weighting of over 31% in the MSCI Emerging Markets index, Mobius has largely missed out on this year’s rally in Chinese stocks. Consequently, its three-year performance figures are some way behind the sector median. It is not surprising that a sizeable proportion of its share register has opted to take advantage of the three-yearly liquidity opportunity. The market cap will likely fall below £100m, which may raise questions about its viability. I don’t have a problem with small trusts (as long as they keep their overheads under control) but Mobius will need to demonstrate that it can turn its performance around.”
