THE FUND:

Tundra’s Mathias Althoff visiting MLP Cares high-end hospital in Istanbul.

The fund fell 4.5% during September, compared to the fund’s benchmark MSCI FMxGCC Net TR (SEK), which fell 3.1%. The main negative contributions during the month came from the fund’s overweights in Egypt and Sri Lanka. Positive contributions were received primarily from the fund’s absence of shares in Kenya and our stock selections in Vietnam. During the month, the fund sold its Pakistani holding in Bank Alfalah and shaved off our holdings in a few Egyptian companies as well as one of our Vietnamese positions. We marginally increased among our Nigerian banking stocks after very weak developments during the month. A temporary loosening of restrictions for foreign shareholders in Vietnamese Lien Viet Post Bank allowed us to increase our position. The selling in Egypt and Pakistan funded a smaller investment (2%) in Turkish MLP Care which operates 31 hospitals throughout Turkey. We see our investment in Turkey in the same way as we previously considered our investments in other countries outside our core markets, such as Kazakhstan, Georgia, and Argentina. Occasionally, investment opportunities outside our core markets (Vietnam, Bangladesh, Pakistan, Sri Lanka, Nigeria, Kenya, and Egypt) will be deemed attractive enough to engage our investment team. Following a catastrophic development for both the Turkish lira and the Turkish Stock Exchange in 2018, we find that the values are selectively interesting enough to engage our team. For a period, we have been evaluating the equity market and as a result, have met a number of companies. We found one company active in the healthcare sector that fulfills both our “abandoned or undiscovered” requirement and provides strong structural growth for a fraction of the valuation in our other markets.
 
THE MARKET:

MSCI FMxGCC Net TR (SEK) fell 3.1% during September compared with MSCI EM Net TR (SEK) which fell 2.8%. It was a generally weak month with few winners. Common to the biggest losers during the month (Sri Lanka -13%, Kenya -12%, Egypt -9% and Nigeria -7%) is that they previously managed relatively better than most other markets. In the current weak market climate, there is hope that the end of a market correction is often characterised by the fact that previous favourites are dumped by investors. Nervousness remains high in most of our markets and one should never underestimate fear as a factor in the short term. However, we believe the current moment represents a great opportunity for long-term investors to look ahead and focus on fundamentals. Investors seem to forget that weakening currencies are an ever-present factor in all our markets and are a natural part of our companies’ everyday lives. Short-term fluctuations in exchange rates and thus cost of goods in production can hit top-line growth and profitability in a quarter or two, but companies with strong market positions will compensate for their increased costs and will ultimately only be marginally affected, if at all. All Tundra’s core markets (Pakistan, Vietnam, Bangladesh, Sri Lanka, Kenya, Nigeria, and Egypt) are expected to grow between 4% (Sri Lanka) and 7% (Bangladesh), and Tundra chooses companies that are likely to grow faster than their underlying economies. Comparing this to the average valuation of the fund where the harmonic average P/E at the time of writing amounts to 8.4x for the current year. No matter how many times these sharp fluctuations occur in growth and frontier markets, investors never seem to get used to them. , but tend to extrapolate nearby history years ahead. And they are wrong each time. For investors who are prepared to take on a 2 to 3-year investment horizon the current market levels, based on historical cycles, are likely to prove to be an exceptional long-term opportunity to increase weight in emerging and frontier markets. Like Franklin Roosevelt, the 32nd President of the United States once said: “the only thing we have to fear is fear itself.”
 
ESG ENGAGEMENT:

Founded in 1993, MLP Care is the only new holding added to the fund in September. Headquartered in Istanbul, the group provides diagnostic and treatment services across 31 hospitals in Turkey and internationally. MLP Care states that it has an internationally-accredited safe environmental management system and it complies with all applicable regulations when carrying out medical and hazardous waste management processes. It also reports that each MLP Care hospital has a dedicated environmental consultant who carries out studies alongside infection control committees and conducts spot-checks to help hospital management improve their impact on the environment. MLP Care is an accredited ISO 9001 Quality Management System. Various training programs are offered to employees on a regular basis.

Pakistani Bank Alfalah was divested during this month due to financial considerations.

 
DISCLAIMER:
Capital invested in a fund may either increase or decrease in value and it is not certain that you be able to recover all of your investment. Historical return is no guarantee of future return. The state of the origin of the Fund is Sweden. This document may only be distributed in or from Switzerland to qualified investors within the meaning of Art. 10 Para. 3,3bis and 3ter CISA. The representative in Switzerland is ACOLIN Fund Service AG, Affolternstrasse 56, CH-8050 Zurich, whilst the Paying Agent is Bank Vontobel Ltd, Gotthardstrasse 43, CH-8002 Zurich. The Basic documents of the fund as well as the annual report may be obtained free of charge at the registered office of the Swiss Representative.