Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

<p>The Steel industry group is building momentum.  The turnaround started in April of last year after a severe drop post the early stage of COVID, but it is far from reaching even the previous highs of late 2018.  Only 55% of the funds in our analysis hold exposure to the Steel industry, 10% lower than in December 2018 and some 40% lower than early 2008.</p><p><a href="https://www.smartkarma.com/entities/vale-sa-7721577f-6c6a-4536-a829-92551c2bcd7f" target="_blank" data-smartkarma-citation="entities:27725:1" rel="noopener">Vale SA (VALE3 BZ)</a> , <a href="https://www.smartkarma.com/entities/posco" target="_blank" data-smartkarma-citation="entities:208:1" rel="noopener">Posco (005490 KS)</a> and <a href="https://www.smartkarma.com/entities/kumba-iron-ore-ltd" target="_blank" data-smartkarma-citation="entities:25094:1" rel="noopener">Kumba Iron Ore (KIO SJ)</a> are the favoured stocks within the sector, with <a href="https://www.smartkarma.com/entities/vale-sa-7721577f-6c6a-4536-a829-92551c2bcd7f" target="_blank" data-smartkarma-citation="entities:27725:1" rel="noopener">Vale SA (VALE3 BZ)</a> representing a good size underweight, on average.  All 3 stocks are still someway from previous peaks in ownership, so if this is a cycle similar to the one that lasted between early 2016 and late 2018, EM fund ownership has a lot further to run.</p>

The Steel industry group is building momentum.  The turnaround started in April of last year after a severe drop post the early stage of COVID, but it is far from reaching even the previous highs of late 2018.  Only 55% of the funds in our analysis hold exposure to the Steel industry, 10% lower than in December 2018 and some 40% lower than early 2008.Vale SA (VALE3 BZ) , Posco (005490 KS) and Kumba Iron Ore (KIO SJ) are the favoured stocks within the sector, with Vale SA (VALE3 BZ) representing a good size underweight, on average.  All 3 stocks are still someway from previous peaks in ownership, so if this is a cycle similar to the one that lasted between early 2016 and late 2018, EM fund ownership has a lot further to run.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> has, for the last year, been subject to dramatic corporate actions which have roiled the share price, and expectations. </p><p>The launch last May of a Delisting Proposal by the promoters when the shares were trading sub Rs. 90/share led to a rally in the shares which could not even track peer stock performance, and when the Delisting Proposal failed, shares dropped to a dramatically low level, despite the fact that Vedanta owned its shareholders a substantial dividend from the pay-through of dividends from <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a>. As commodity prices continued to rally, and VEDL paid a big dividend in October 2020, it looked like the time to double-up. Everyone "knew" the promoters were willing to pay 40-50% than the post-Delisting Proposal failure to take the whole thing private. I expected a buyback. 10 days after the CEO said "we have no plans to buy more shares" we got an off-market block purchase of 5% by the promoters in December at Rs 160, followed a couple of weeks later by a proposed Open Offer to buy another 10%, which was later upsized and up-priced - by 47%, and still the Promoters could only get 10% of the 17.5% they sought to buy. </p><p>A month on from that and the shares are nearly 10% higher than the Open Offer Price while a Peer Basket is largely unchanged from two months back. </p><p>This means VEDL shares are again (as they were just before  at their high point against Peers since pre-pandemic. The current situation of covid-19 and variant spread in India is terrible and one could imagine that some drastic measures may still be taken to contain the spread, which could slow down the economy dramatically. </p><p>The 70% catchup vs peers to reach the December 2019 level (as of post-Delisting Proposal failure) has now been caught up. The VEDL 2-3yr forward EV/EBIT ratio is now less than 1 turn from its long-term average spread to peers. </p><p>More below the fold.  </p>

Vedanta Ltd (VEDL IN) has, for the last year, been subject to dramatic corporate actions which have roiled the share price, and expectations. The launch last May of a Delisting Proposal by the promoters when the shares were trading sub Rs. 90/share led to a rally in the shares which could not even track peer stock performance, and when the Delisting Proposal failed, shares dropped to a dramatically low level, despite the fact that Vedanta owned its shareholders a substantial dividend from the pay-through of dividends from Hindustan Zinc (HZ IN). As commodity prices continued to rally, and VEDL paid a big dividend in October 2020, it looked like the time to double-up. Everyone "knew" the promoters were willing to pay 40-50% than the post-Delisting Proposal failure to take the whole thing private. I expected a buyback. 10 days after the CEO said "we have no plans to buy more shares" we got an off-market block purchase of 5% by the promoters in December at Rs 160, followed a couple of weeks later by a proposed Open Offer to buy another 10%, which was later upsized and up-priced - by 47%, and still the Promoters could only get 10% of the 17.5% they sought to buy. A month on from that and the shares are nearly 10% higher than the Open Offer Price while a Peer Basket is largely unchanged from two months back. This means VEDL shares are again (as they were just before  at their high point against Peers since pre-pandemic. The current situation of covid-19 and variant spread in India is terrible and one could imagine that some drastic measures may still be taken to contain the spread, which could slow down the economy dramatically. The 70% catchup vs peers to reach the December 2019 level (as of post-Delisting Proposal failure) has now been caught up. The VEDL 2-3yr forward EV/EBIT ratio is now less than 1 turn from its long-term average spread to peers. More below the fold.  

Vedanta Now Caught Up With Peers - A Different Skew Ahead

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/bradespar-sa" target="_blank" data-smartkarma-citation="entities:24510:1" rel="noopener">Bradespar SA (BRAP4 BZ)</a> is an attractive investment, as a discounted vehicle through which to gain exposure to iron ore miner <a href="https://www.smartkarma.com/entities/vale-sa-7721577f-6c6a-4536-a829-92551c2bcd7f" target="_blank" data-smartkarma-citation="entities:27725:1" rel="noopener">Vale SA (VALE3 BZ)</a> </li>
<li>We believe that the current 25% discount to the NAV at Bradespar is excessive, and that this should narrow in the near term</li>
<li>Vale’s fundamentals are robust, supported by s strong iron ore price and, as an exporter, benefiting from a weak BRL</li>
<li>
<a href="https://www.smartkarma.com/entities/itausa-investimentos-itau-pr" target="_blank" data-smartkarma-citation="entities:24513:1" rel="noopener">Itausa-Investimentos Itau-Pr (ITSA4 BZ)</a> is trading close to its long run and 18 month average discount to the NAV; we are neutral on Itausa</li>
<li>Risks to our positive view on Bradespar include a sustained weakening in iron ore prices, a strengthening of the BRL as well as a worsening of sentiment towards Brazil and Latin American equities generally</li>
</ul>



Bradespar SA (BRAP4 BZ) is an attractive investment, as a discounted vehicle through which to gain exposure to iron ore miner Vale SA (VALE3 BZ) 
We believe that the current 25% discount to the NAV at Bradespar is excessive, and that this should narrow in the near term
Vale’s fundamentals are robust, supported by s strong iron ore price and, as an exporter, benefiting from a weak BRL

Itausa-Investimentos Itau-Pr (ITSA4 BZ) is trading close to its long run and 18 month average discount to the NAV; we are neutral on Itausa
Risks to our positive view on Bradespar include a sustained weakening in iron ore prices, a strengthening of the BRL as well as a worsening of sentiment towards Brazil and Latin American equities generally


A Tale of Two Brazilian HoldCos; We Prefer Bradespar (BRAP4 BZ) Over Itausa (ITSA4 BZ)

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a>, <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a>, <a href="https://www.smartkarma.com/entities/kia-motors-corp" target="_blank" data-smartkarma-citation="entities:156:1" rel="noopener">Kia Motors Corp (000270 KS)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a>, <a href="https://www.smartkarma.com/entities/mtn-group-ltd" target="_blank" data-smartkarma-citation="entities:24897:1" rel="noopener">MTN Group Ltd (MTN SJ)</a>, <a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a>, <a href="https://www.smartkarma.com/entities/vale-sa-7721577f-6c6a-4536-a829-92551c2bcd7f" target="_blank" data-smartkarma-citation="entities:27725:1" rel="noopener">Vale SA (VALE3 BZ)</a>, <a href="https://www.smartkarma.com/entities/petroleo-brasileiro-sa-1cc9bae4-1206-4157-b187-d2f98d7b3b2b" target="_blank" data-smartkarma-citation="entities:27684:1" rel="noopener">Petroleo Brasileiro SA (PETR4 BZ)</a> </p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Mediatek Inc (2454 TT), Hyundai Motor Co (005380 KS), Kia Motors Corp (000270 KS), ByteDance (1460967D CH), MTN Group Ltd (MTN SJ), Reliance Industries (RIL IN), Vale SA (VALE3 BZ), Petroleo Brasileiro SA (PETR4 BZ) 

Global Emerging Markets Weekly: 5 February 2021

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Quantitative Analysis

<ul>
<li>TMI's short-term iron ore sentiment indicator has turned negative while steel sentiment holds up; a divergence of this magnitude hasn't been observed since 2018</li>
<li>This dynamic appears to be driven by recent Chinese steel shutdowns on environmental grounds, which the market perceives as aimed at cooling the iron ore price more so than the typical "anti-pollution" measures</li>
<li>Text mining shows a recent +2x STDEV increase in Chinese media mentions of steel in an environmental context, seen as supportive for steel prices but potentially negative for iron ore</li>
<li>More alarmingly, we are seeing a +2x STDEV spike in discussion of iron ore in a policy context, as Chinese authorities appear to be more attuned to CISA's complaint that foreign iron ore miners are disproportionately benefiting from the recovery while Chinese steelmakers suffer</li>
<li>Although underlying activity levels remain strong, the combination of punitive policies and an improving supply picture suggests tightness in iron ore may have peaked</li>
</ul><section><div id="ember4041"><div><div><div class="content-highlight"><p>TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </p></div></div></div></div></section>


TMI's short-term iron ore sentiment indicator has turned negative while steel sentiment holds up; a divergence of this magnitude hasn't been observed since 2018
This dynamic appears to be driven by recent Chinese steel shutdowns on environmental grounds, which the market perceives as aimed at cooling the iron ore price more so than the typical "anti-pollution" measures
Text mining shows a recent +2x STDEV increase in Chinese media mentions of steel in an environmental context, seen as supportive for steel prices but potentially negative for iron ore
More alarmingly, we are seeing a +2x STDEV spike in discussion of iron ore in a policy context, as Chinese authorities appear to be more attuned to CISA's complaint that foreign iron ore miners are disproportionately benefiting from the recovery while Chinese steelmakers suffer
Although underlying activity levels remain strong, the combination of punitive policies and an improving supply picture suggests tightness in iron ore may have peaked
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Indicators: Iron Ore Sentiment Deteriorates As Increased Policy Focus Drives Greater Caution

Brazil

Vale SA produces and sells iron ore, pellets, manganese, alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum, and potash. The Company is based in Brazil, where it owns and operates railroads and maritime terminals.

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Vale SA - Pref (VALE5 BZ)

EM Steel: Gaining Strength

The Steel industry group is building momentum. The turnaround started in April of last year after a severe drop post COVID, but it is far from...

Steven Holden

Vedanta Now Caught Up With Peers - A Different Skew Ahead

VEDL has been a rocket the last several months. And it still "owes" dividends of ~Rs 24/share to its shareholders. HZL results were salutary, but...

Travis Lundy

A Tale of Two Brazilian HoldCos; We Prefer Bradespar (BRAP4 BZ) Over Itausa (ITSA4 BZ)

Bradespar holdco is a vehicle that provides discounted exposure to iron ore miner Vale; we see the current 25% discount to the Bradespar NAV as...

Victor Galliano

Global Emerging Markets Weekly: 5 February 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

TMI Indicators: Iron Ore Sentiment Deteriorates As Increased Policy Focus Drives Greater Caution

TMI

Elan Gore

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