Mark Mobius’ retirement from Mobius Capital Partners coincided with a year of strong underlying performance by its flagship emerging markets trust.

Annual results this month from Mobius (MMIT ) showed the £169m portfolio of small and mid-cap emerging market stocks delivered a total 8.5% return on net assets in the year to 30 November, the point at which the 87-year-old co-founder and veteran investor stepped down. 

Whichever benchmark you look at, that represented a win for fund manager Carlos Hardenberg, beating a 2% decline in the main MSCI Emerging Markets index, a 0.4% return from the MSCI Frontier Markets benchmark and a 2.7% return from the MSCI Emerging Markets Mid Cap index.

Sadly, the shares gained only 2.1% as the discount, or gap, between the share price and the fund’s net asset value widened from 2.4% to 8.2% last summer. That has since narrowed slightly to 7.6% but is wider than the one-year average discount of 4.4%, according to Deutsche Numis data.

Unfortunately, the board has not used its powers to buy back shares when they drift more than 5% away from NAV so shareholders must wait for sentiment to emerging markets to improve before the stock’s rating improves.

Presumably, the board is anxious not to shrink Mobius and make it less attractive to big wealth managers who increasingly focus on trusts over £300m.

Turning to the investments, while the trust couldn’t directly benefit from last year’s big story involving the surge in the ‘Magnificent Seven’ mega cap US tech stocks, Hardenberg (below) said it did benefit from the knock-on effect to its semiconductor holdings from the hype around artificial intelligence (AI).

The manager said semiconductor companies ‘are already benefiting from increased demand for high performance chips’ as well as the share prices of the ‘larger, better-known companies catering to this trend’.

However, he said the trust’s ‘highly innovative companies, which provide essential components for high-performance chips are yet to be widely discovered’ despite continuing to grow ‘exponentially’.

This includes Citywire Elite Companies + rated Park Systems, a Korean business which was added to the portfolio this year and is a leader in ‘atomic force microscopy’ that provides semiconductor testing, and Elite Material, a Citywire A-rated Taiwanese supplier to the major chip makers. Elite Materials was a top three performer for the trust over the year.

Hardenberg added six new positions over the year, including Turkish software group Hitit Bilgisayar, which provides IT solutions to the global airline industry, digital map provider MapMyIndia that boasts Apple, Hyundai and Amazon as clients, and Dreamfolks, an airport services platform provider.

In the fourth quarter of the financial year, Hardenberg added Citywire + rated Brazilian jewellery brand Vivara. The 60-year-old company has a market share of 18%, operating nearly 400 stores across Latin America’s largest economy.

‘Its vertical integration, controlling sourcing, design, and production, acts as a significant competitive advantage,’ the manager said, adding that new launches should enhance the firm’s profitability.

Hardenberg said the ‘pervasive theme of persistent uncertainty remains a hallmark of our journey’ with the trust navigating a pandemic, geopolitical turbulence and economic shocks in its five-and-a-half years.

The expectation for US interest rate cuts, and the continued success of the ‘Magnificent Seven’ – made up of Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla – has ‘widened the already significant valuation gap with emerging market companies in a number of sectors’, and investors are slowly being enticed back to the value in emerging markets, he said.

Maria Luisa Cicognani, the trust’s chair, said the trust remained focused on financially strong, cash-generative companies with ‘unique offerings’.

‘At a time when macro themes dominate the investor landscape, an unwavering focus on fundamentals, governance and individual company positioning becomes increasingly important,’ she said.

Over five years, Mobius has generated a total shareholder return of 31.5%. That’s the third best in its 11-strong sector and compares to just 16.4% from the MSCI Emerging Markets index which has been held back by the problems in China, where Mobius has only 2.9% invested. Good as it is, it falls well short of the 52.3% total growth achieved by the portfolio, which is another reason why share buybacks could help.