For professional investors and advisers only
Identifying and tracking investment themes is an important part of how RWC Partners constructs portfolios for its clients. When thinking about its thematic exposure, RWC separates ‘Old World’ sectors like education, infrastructure and rare materials from ‘New World’ opportunities such as technology disruption, 5G mobile networks, new auto technology and new media. The rising penetration of internet connectivity, 5G smartphones and new car technology has led to strong demand for IT hardware across the value chain.
The strategy for the RWC Global Emerging Markets Fund (‘Underlying Fund’) is looking for technology companies active in areas that are disrupting the way an industry works, that are creating new business models, or where the technology is changing so dramatically that the number of companies able to compete in the area shrinks to an effective oligopoly.
E-commerce is part of this theme, but in emerging markets much of that experience is leapfrogging the desktop and moving straight to mobile (i.e. ‘M-commerce’). Internet media, advertising and classifieds is another area undergoing disruption. Rapid changes in technology can lead to a significant reduction in the number of competing companies so that a technology specialty can become an effective oligopoly.
RWC’s holdings in this theme currently comprise 18.7% of the Underlying Fund’s portfolio and include South Korean semiconductor supplier SK Hynix and Indian-based IT company Tata Consultancy.
Mobile data consumption is doubling every 18 months. RWC believes 5G mobile networks will be the solution in keeping up with this growth in demand via their vastly increased data capacity. It also believes 5G holds the promise of enabling new real time applications and blurring the line between locally stored data and cloud streaming services.
This means that, for example, augmented reality applications, multi-angle sports views and streaming gaming are all possible. Like both the gold mining boom of the 19th Century and the early days of the internet, technology hardware companies will be the first beneficiaries of this new growth area.
5G uses much higher frequency bands and therefore requires up to nine times more base stations than 4G LTE. This means that the required CAPEX by operators could be substantial, while adding little to their bottom line, at least early on.
Furthermore, adding 5G to a handset requires more components and increases costs – initially by over $100 per unit. While this price premium may rapidly erode, the technology still requires more semiconductor components going forward and therefore RWC believes 5G provides a substantial growth avenue for chip makers.
RWC’s holdings in this theme currently comprise 12.9% of the Underlying Fund and include Samsung Electronics and Taiwanese fabless semiconductor company MediaTek.
Technology is driving significant disruption in the auto sector. Safety, guidance, and monitoring systems are only a stepping stone to partially or fully autonomous cars. Entertainment and connectivity solutions are also a must in today’s cars.
And hybrid or electric vehicles (EVs) combine all of this with a fully integrated battery to drive electric motors either in combination with an internal combustion engine or as a complete replacement. EVs require new materials for batteries and battery technology, components for a completely new drivetrain, and all other related systems.
All of this is driving dramatic growth in new areas of the auto sector as EVs need a variety of different components, leading to a shift in the balance of suppliers.
RWC’s holdings in this theme currently comprise 5.6% of the Underlying Fund’s portfolio and include China-based Geely Automobile and the world’s biggest lithium producer, Chilean Quimica y Minera.
The rising penetration of internet connectivity, smartphones, and new delivery platforms, such as Netflix, have redefined the value of content in the relationship between consumer and provider.
Traditionally, media content had been paid for primarily by advertising. Then new technology allowed for the pirating of content, and revenue declined as a result. Now that pirating is under control and users are willing to pay, the value of good content has been re-established.
RWC believes this offers growth opportunities for several players, including portals, cloud storage, streaming services and content providers. Additionally, gaming and gambling are two fast-growing areas in the leisure time space.
RWC’s holdings in this theme currently comprise 2.7% of the Underlying Fund’s portfolio and include Chinese internet media company Kuaishou Technology and South Korean video game developer NCSOFT.
In partnership with RWC Partners, Channel Capital offers local investors exclusive access to the Underlying Fund via the CC RWC Global Emerging Markets Fund (‘the Fund’).
A proven global emerging markets manager, RWC Partners pragmatically combines top-down macroeconomic and thematic research with bottom-up fundamental analysis to uncover medium-to long term growth opportunities, investment themes and valuation inefficiencies. The Underlying Fund’s philosophy and style can be best described as growth-at-a-reasonable price.
At 30 April 2021, the Fund has returned 19.70% per annum after fees since its inception in February 2019 and posted a 1-year return of 50.40% after fees, outperforming the MSCI Emerging Markets Index by 8.44% and 24.35% respectively. The Fund is ranked No. 2 out of 75 other funds based on Morningstar’s fund report as at 31 March 2021, in Trailing Total Returns over 1 year in the Equity Emerging Markets category.
For more information about how to access the Fund, please contact us.
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