Clive Beagles and James Lowen, managers of JOHCM UK Equity Income Fund (GB00B03KR617), added specialist emerging markets investment manager Ashmore Group (ASHM) to the fund during October.
They say: "We have danced around Ashmore Group on a number of occasions in the past, but always had two issues with the stock:
(a) it was too expensive; and
(b) the revenue margins were high and needed to see some downward normalisation.
"Both of these factors have changed, the former via a fall in the share price, in part driven by general emerging markets issues, and in part because of volatility in the new asset flow data and associated earnings downgrades.
"The second point is now less of an issue as we have seen revenue margins fall over the last two years, and they appear to be stabilising now. So we have a global market leader exposed to the long-term structural growth trend of emerging markets debt, with a net cash position equal to around 20 per cent of the company's market cap.
"Furthermore, this is a company that has invested in broadening and deepening its distribution capabilities over the last two to three years. The valuation is very depressed, partly due to the above points, but also as a result of selling pressure from two of the larger shareholders - due to a fund closure in one case and fund manager change in the other. Cash adjusted, our entry price-earnings ratio is around 10x to 11x and the stock yields 5.5 per cent."
Investors Chronicle rated Ashmore Group as a 'Hold' at 325p on 11 September. We said that while Ashmore's longer-term investment performance is pretty sound and has a very attractive dividend, ongoing volatility in emerging markets and investor caution leaves little room for a re-rating. As at 10 December 2014 the shares are trading at 291.5p.
