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Getting the best with ESG at Mobius Investment Trust

Carlos Hardenberg tells Leonora Walters how applying ESG improvements in emerging markets can lead to outperformance
Getting the best with ESG at Mobius Investment Trust

Mobius Investment Trust invests in emerging markets smaller companies via an ESG approach

Its managers also look at a company's culture because they have found that successful companies tend to treat their employees well 

The potential for ESG improvements varies in different countries


Emerging markets are not associated with good governance, transparency or ethical behaviour. But Mobius Investment Trust (MMIT) invests in emerging markets taking into consideration environmental, social and governance (ESG) factors. And its managers – Carlos Hardenberg and veteran emerging markets investor Mark Mobius - have been considering such issues since long before they rose to prominence in any region.

“We have invested in emerging markets for many decades [where] the companies are often run by phenomenal entrepreneurs,” says Hardenberg. “They really know how to run the businesses - they are very good operators. But in many cases they neglect governance, transparency and other aspects which are important for shareholders. We started to work on governance improvements around 15 years ago in Brazil, Korea, Turkey and other markets. We started to always review, for example, the composition and quality of boards. If you have a proper supervisory board which is independent, has very clear key performance indicators and follows clear policies there’s always an insurance policy. We have appointed over 80 board members in emerging markets and created a better relationship between shareholders and portfolio companies. It created confidence and trust in these businesses, and when companies start to play by the rules, become more transparent, and have better policies and governance rules in place, they typically start to outperform.”

He says that ESG improvements include putting better employee share incentivisation programmes in place, and investing in internal aspects that lead to lower staff turnover and fewer regulatory fines. “As these companies become leaders in terms of their reputation it also allows them to attract better people overall,” he adds.

Hardenberg and his colleagues also consider what they describe as companies' culture. He says that there are many ways in which a company with a strong corporate culture is differentiated from one with a weak corporate culture. For example, they look at how companies deal with employees and their families, how companies get employees to associate with the success of the business, inclusion, diversity, career planning, and whether companies allow flexible working and support families and mothers with children. 

Although Covid-19 has restricted international travel and face-to-face meetings, Hardenberg and his colleagues continue to engage with them via virtual meetings. They recently reported that: “Good progress was made on a number of action points during the first quarter of the new year. Indian steel pipes producer APL Apollo Tubes (IND:APLAPOLLO) for the first time published an integrated sustainability report while Brazilian healthcare company Grupo Fleury (BRA:FLRY3) started to link executive compensation to sustainability goals. Kenyan telecoms company Safaricom (KEN:SCOM) announced a new female independent director, improving its board independence and gender diversity. [And] Yum China (HK:9987) was included in the Bloomberg Gender Equality Index as the only company from mainland China. Yum China is recognised for its commitment to transparency in gender reporting and advancing women’s equality.”

But the potential to improve companies’ ESG and culture credentials varies from country to country. Despite success with Yum China, Hardenberg says “in China, in general, [this] is much more difficult than in other markets. You have local stock exchanges which foreigners can’t invest in, and reporting standards and transparency are still generally poor. Engaging with companies in China is the most challenging [of] all the attempts we are making”.

However, they are now asking companies they hold to set up a task force on climate-related financial disclosure and integrate ESG targets into executive compensation. And increasing numbers of Chinese companies, including Yum China, are doing this.

By contrast, while Hardenberg used to try to implement better ESG standards and transparency in Turkish companies, “now I no longer have to do this because local investors are becoming even more aggressive about this. And there’s an initiative by the local stock exchange that requires implementation of ESG related disclosure practices in Turkey”.

Companies in Brazil, meanwhile, “are increasingly sensitive to ESG related issues, so gender equality, equal pay and inclusion factors play an increasing role in the private sector”.

Mobius Investment Trust's managers also take what they describe as a private equity approach to investing in public markets. Hardenberg says that this is because they run a very concentrated portfolio – the trust only had 28 investments at the end of February. And Mobius Investment Trust tends to focus on mid-caps while many broad emerging markets funds favour larger companies. Private equity funds often focus on smaller and earlier stage companies.

Hardenberg adds: “When you invest in these companies, often you find governance, transparency and reporting standards which are just not world class. The companies are world class at what they do but not at playing by the rules which are required in capital markets. We develop a relationship with the founders and senior managements offering advice on how to optimise their profile. Typically, we summarise our findings and observations, and offer solutions on how they can improve general governance related policies and standards. We have decades of experience in markets and are offering it to them - like private equity investors do - and this engagement can really create a lot of value for these businesses. We are also long term investors - we’re not flipping stocks around.”

Having a smaller number of holdings is considered to increase a fund’s risk, while smaller companies and emerging markets are viewed as higher risk. But Hardenberg argues that being relatively concentrated in such areas does not exacerbate risk.

“You can really diversify currency, single company, sector and geographic risks with around 25 to 30 stocks," he says.

And careful selection helps. He says that as an example, the trust has over a quarter of its assets in India, which might cause concern due to the severe situation that country is in because of coronavirus.

“Our Indian portfolio has outperformed significantly and many of our Indian stocks are up more than 30 per cent year to date,” he says. “They performed really well last year and they continue to this year. Why? Because we have invested very conservatively in businesses which have very little debt. We have invested in smaller businesses which are vibrant and innovative, and companies which have a diversified geographical exposure. [Software and computer services company] Persistent Systems (IND:PERSISTENT), for example, generates revenues globally – in the US, Europe and in many other places.”

Other Indian holdings include Metropolis Healthcare (IND:METROPOLIS), which provides laboratory tests, and support and diagnostic services. And Hardenberg recently reported that APL Apollo Tubes was the top contributor to the trust’s performance over the first quarter and has “managed to cope with the Covid-19 situation better than its Indian peers, with an optimised cost structure and improved working capital management”.

He says that such Indian holdings should “do very well over the next decade. They are blessed with fantastic management teams – the best at what they do, they have very strong ‘moats’ around their businesses and they are superior in terms of profitability. They may run into more trouble this year [as the situation] may get much worse. But these businesses will come out as leaders and win relatively by using this period of weakness to solidify their business models. They have plenty of cash so can acquire competitors which run into bigger trouble and can also endure these times by having fairly diversified business models”.

In Turkey, meanwhile, there are concerns on currency and political risk. But last year they invested in Logo Yazilim (TUR:LOGO) which develops and markets enterprise resource planning systems.

“With a 24 per cent market share, Logo is the second biggest player in Turkey after SAP (GER:SAPX), and the fastest growing IT company with more than 800 dealers and a broad distribution network,” he says. “Logo has two business primary areas – software and services – and a number of recent acquisitions have increased exposure to Romania which like Turkey is an underpenetrated market. Logo is doing extremely well and, again, has close to no debt. It is a local leader in technology run by the founder.”


Carlos Hardenberg CV

October 2018 – co-manager, Mobius Investment Trust

May 2018 – founding partner, Mobius Capital Partners

October 2015 - March 2018 – manager, Templeton Emerging Markets Investment Trust (TEM)

March 2002 - April 2018 – research analyst and fund manager, Franklin Templeton Investments

2000 - 2002 corporate finance analyst, Bear Stearns International

January 1999 - October 1999 – associate research analyst, Franklin Templeton Investments


Mobius Investment Trust (MMIT)
AIC sectorGlobal Emerging MarketsNAV126.3p
Fund typeInvestment trust*Price discount to NAV5.80%
Market cap£125mOngoing charge1.5%*
Set-up date01/10/2018*Yield 0%
Manager start date01/10/2018*More details
Number of holdings28*  
Source: Winterflood, 25 May 2021, *Mobius Investment Trust.


Fund/benchmark3 month total return (%)6 month total return (%)1 year total return (%)
Mobius Investment Trust NAV61747
Mobius Investment Trust share price71659
MSCI Emerging Markets Free index-4229
Emerging markets investment trusts average NAV0832
Emerging markets trusts average share price01040
Source: Winterflood, 25 May 2021


Top 10 holdings (%)
eMemory Technology9.5
Persistent Systems9.4
APL Apollo Tubes8.9
Polycab India5.8
Yum China 5.7
LEENO Technology 5
Safaricom 4.6
AK Medical3.8
EC Healthcare3.5
Source: Frostrow Capital, 30 April 2021


Geographical breakdown (%)
South Korea5
South Africa3
Source: Frostrow Capital, 30 April 2021