Fidelity International is set to take over the £1.2bn Genesis Emerging Markets trust following the board’s decision to pivot strategy and more aggressively target retail money.
Fidelity emerged victorious at the end of a “competitive process” to replace existing manager Genesis Investment Management which has managed the trust since its inception over three decades ago.
Pending shareholder approval, the FTSE 250 listed investment company will transfer to Fidelity in September at which point it will rebrand to Fidelity Emerging Markets Limited. Its investment policy will also be updated with the trust permitted to invest in both listed and unlisted companies, as well as use derivatives to take out short and long positions.
Experienced emerging markets manager Nick Price will step up to run the trust alongside assistant portfolio manager Chris Tennant.
Genesis Emerging Markets takes the number of investment trusts in Fidelity’s stable to six with over £6bn in assets.
Fidelity brand recognition
The board said the trust would benefit from the strength of Fidelity’s emerging markets team, which manages over $27bn in assets, as well as the asset manager’s brand recognition.
Genesis Emerging Markets chairman Hélène Ploix said: “Following a thorough review of its investment management arrangements and after considering a range of strong candidates in a competitive process, it was clear to the board that Fidelity has the depth of expertise in emerging markets and in the management of investment trusts.
“The company would also benefit considerably from Fidelity’s brand, and its ability to attract new shareholders with its significant marketing resource. We look forward to working with the new portfolio managers and the wider team.”
Genesis IM, which is better known in the institutional space, said its “focus on prioritising investment performance” and “careful approach to capacity management” was out of step with the board’s strategy shift and desire to target retail investors.
“The firm’s absolute focus on investment performance means resisting any external pressures to amend its approach in return for short term, transient gains,” it said. “Using derivatives and leverage, as the board proposes, is a significant change and not one that Genesis would wish to replicate.”
In addition the trust’s annual management fee will see a significant reduction from 0.9% to 0.6% of net asset value. Fidelity will also waive its fee for the first nine months following its appointment.
Willingness to promote fund to investors is an obligation for management groups
Analysts were overwhelmingly positive about the decision to appoint Fidelity.
Stifel upgraded its recommendation from ‘neutral’ to ‘positive’.
“We thought the board and the manager need to be asking more radical questions about the investment approach,” the firm said in an analyst note. “The board have certainly delivered on this, with the appointment of Fidelity as managers, a 25% tender offer at a 2% discount to NAV, and a reduction in fees.”
Numis said the decision to oust Genesis IM was “not a massive surprise”. Despite being in the FTSE 250, the trust has kept a low profile, the stockbroker said. It has also traded at a consistent discount for several years with its significant underweight exposure to China and IT stocks hampering performance relative to peers and the MSCI Emerging Markets index.
“We can understand Genesis not changing their investment approach, but we expect that the major issue for the board was the manager’s unwillingness to promote the fund to investors, which we believe is an obligation for management groups of listed investment companies.”
