{"id":29009,"date":"2023-06-29T05:15:35","date_gmt":"2023-06-29T09:15:35","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/this-top-performing-small-cap-manager-is-betting-big-on-china\/"},"modified":"2023-06-29T05:15:36","modified_gmt":"2023-06-29T09:15:36","slug":"this-top-performing-small-cap-manager-is-betting-big-on-china","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=29009","title":{"rendered":"This Top-Performing Small-Cap Manager Is Betting Big on China"},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

Vivek Tanneeru understands why investors are avoiding China. Blame it on lackluster post-Covid growth and continued geopolitical tensions with the U.S., among other reasons. But to underweight or ignore China is to miss opportunities, particularly in small-cap stocks, he argues.<\/p>\n

As the lead portfolio manager of the $440 million, no-load
\n Matthews Emerging Markets Small Companies
\n fund (MSMLX) since 2020, Tanneeru, 46, steered the Morningstar five-star fund to a 15.1% annualized three-year return, landing it in the top 1% of its peers. Even with an above-average 1.37% annual fee, the fund wallops its peers and the benchmark MSCI Emerging Markets Small Cap Index, in each case by about 11.5 percentage points annualized over three years. <\/p>\n

\n

Although the San Francisco-based Tanneeru is relatively new to the Small Companies fund, he has also managed the $225 million
\n Matthews Emerging Markets Sustainable Future
\n fund (MASGX) since that Morningstar bronze medalist\u2019s 2015 inception. That fund\u2019s all-cap strategy has a heavy dose of small- and mid-cap holdings, he says, to underscore his small-company chops.<\/p>\n

The Small Companies fund is heavily focused on China, but Indian companies represent 18% of its assets, with
\n Bandhan Bank
\n (BANDHAN.India), the country\u2019s largest microfinance lender, and
\n Shriram Finance
\n (SHFL.India), a small enterprise financier, the fund\u2019s No. 1 and No. 2 holdings, respectively. Both have strong balance sheets and cost-of-funds advantages which could help them grow in the medium term. Tanneeru calls them \u201cvery attractively valued.\u201d<\/p>\n

He views China\u2014which, at 27.8%, represents the largest share of the fund\u2014as one of the few markets, including the U.S. and India, where small companies can grow exponentially in a short time. As the world\u2019s second-largest economy, it has a massive consumer base. \u201cIf you have the right product and the right strategy, there is potential for growth. To me, that is the primary attraction of China,\u201d he says. <\/p>\n

Geopolitics are always a risk, but he doesn\u2019t expect tensions to seriously escalate between the U.S. and China. \u201cChina didn\u2019t get to where it did over the last 35 to 40 years without being pragmatic,\u201d he says. China\u2019s small-cap companies were largely unaffected during the country\u2019s recent crackdown on the frothy technology, education, and real estate sectors, he adds.<\/p>\n

<\/p>\n
\n
\n\n\n\n\n\n
<\/th>\nTotal Return YTD<\/th>\nTotal Return 1-Yr<\/th>\nTotal Return 3-Yr<\/th>\n<\/thead>\n
MSMLX<\/td>\n12.7%<\/td>\n12.0%<\/td>\n15.1%<\/td>\n<\/tr>\n
Diversified Emerging Markets Category<\/td>\n6.4<\/td>\n3.2<\/td>\n3.4<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
<\/p>\n
\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Company \/ Ticker<\/th>\n% Net Assets<\/th>\n<\/thead>\n
Bandhan Bank \/ BANDHAN.India<\/td>\n7.2%<\/td>\n<\/tr>\n
Shriram Finance \/ SHFL.India<\/td>\n5.8<\/td>\n<\/tr>\n
Legend Biotech \/ LEGN<\/td>\n5.5<\/td>\n<\/tr>\n
Ecopro BM \/ 247540.Korea<\/td>\n5.3<\/td>\n<\/tr>\n
Full Truck Alliance \/ YMM<\/td>\n2.9<\/td>\n<\/tr>\n
Hugel \/ 145020.Korea<\/td>\n2.7<\/td>\n<\/tr>\n
Silergy \/ 6415.Taiwan<\/td>\n2.7<\/td>\n<\/tr>\n
YDUQS Participacoes \/ YDUQ3.Brazil<\/td>\n2.6<\/td>\n<\/tr>\n
Phoenix Mills \/ PHNX.India<\/td>\n2.6<\/td>\n<\/tr>\n
M31 Technology \/ 6643.Taiwan<\/td>\n2.5<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/tr>\n
TOTAL:<\/td>\n39.8%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Note: Holdings as of May 31. Returns through June 26; three-year returns are annualized.<\/p>\n

Sources: Morningstar; Matthews Asia\t\t\t\t<\/p>\n<\/div><\/div>\n<\/p><\/div>\n

Tanneeru looks for innovative companies, particularly in biotech and medical devices, and those focusing on consumer goods and services. Taking a page from his Sustainable Future fund, he believes choosing well-run companies that provide necessary services will benefit both consumers and investors.<\/p>\n

To find those companies, he works closely with Matthews Asia\u2019s team of eight analysts and fellow co-managers Jeremy Sutch and Alex Zarechnak, employing quantitative screens to find companies with consistent, profitable growth that are good stewards of capital. The bottom-up stockpickers study private, high-quality companies to know management teams, product pipelines, capabilities, and competitive positions. It\u2019s a collaborative and iterative process, although Tanneeru has final say.<\/p>\n

The team looks for companies with strong balance sheets that can fund their own growth, whether those with \u201cmassive cash positions\u201d or a product or service so attractive, they can raise capital even in stressful economic times. The fund doesn\u2019t hedge currency risk, which Tanneeru says is too challenging and expensive. Instead, it seeks higher returns as a way to manage the risks of emerging market investing. <\/p>\n

The Small Companies fund can invest across emerging markets, but Tanneeru is heavily overweight China versus the index, at 27.8% versus 9.5%, respectively. He says that the country is home to the best opportunities, and that Chinese companies have underpinned the fund\u2019s outperformance.<\/p>\n

The No. 3 holding,
\n Legend Biotech
\n (LEGN), exemplifies Tanneeru\u2019s philosophy and process. The company partnered with
\n Johnson & Johnson
\n (JNJ) to develop a multiple myeloma therapy that allows immune cells to more effectively target that cancer. The Food and Drug Administration has approved the therapy for use in certain patients. <\/p>\n

\u201cThe CAR-T therapy is among the world\u2019s most efficacious and safe treatments of its kind,\u201d he says. Since purchasing Legend Biotech not long after its initial public offering in 2020, the stock has tripled, he adds.<\/p>\n

He\u2019s also excited by No. 5 holding
\n Full Truck Alliance
\n (YMM), a leading freight marketplace in China that specializes in intercity transportation. It has created a digital platform to optimize routes by matching available truckers and businesses, benefiting truckers and reducing heavy-truck emissions.<\/p>\n

Tanneeru isn\u2019t surprised by China\u2019s current tepid economy, noting the government didn\u2019t provide the same massive stimulus Western governments did during Covid, nor does he expect the current stimulus injections to be substantial. Once China\u2019s economy rebounds, he expects companies such as Full Truck Alliance to benefit.<\/p>\n

Outside of Asia, Small Companies is adding Latin American holdings, including No. 7 holding
\n YDUQ3 Particiapaceoes<\/span>
\n (YDUQ3.Brazil), a Brazilian educational company. It offers undergraduate classes and has a medical college business. During Covid it invested heavily in distance learning, and Small Companies bought it in late 2021 when prices slumped. Valuations rebounded in the past few months after strong first-quarter earnings.<\/p>\n

Tanneeru is optimistic about emerging markets, noting countries such as China and India aren\u2019t experiencing the same inflation problems as in the West, while countries such as Brazil appear to be managing their inflation targets after a round of aggressive interest rate hikes. <\/p>\n

He recognizes outlooks may remain tough in emerging markets, including China. That\u2019s why the Small Companies fund focuses on risk management and being able to pick stocks at cheap valuations that can compound.<\/p>\n

\u201cI think it will take a little while for some of the animal spirits to come back,\u201d he says. \u201cBut I do expect that to happen.\u201d <\/p>\n

Email: <\/strong>editors@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Tanneeru understands why investors are avoiding China. Blame it on lackluster post-Covid growth and continued geopolitical tensions with the U.S., among other reasons. But to underweight or ignore China is to miss opportunities, particularly in small-cap stocks, he argues. As the lead portfolio manager of the $440 million, no-load Matthews Emerging Markets Small Companies […]<\/p>\n","protected":false},"author":1,"featured_media":29010,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-29009","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThis Top-Performing Small-Cap Manager Is Betting Big on China | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Vivek Tanneeru understands why investors are avoiding China. 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