Monthly Update - September 2023

Ashoka WhiteOak Emerging Mkts Tst.

25 October 2023

 

25 October 2023

Ashoka WhiteOak Emerging Markets Trust plc

(the "Company")

Monthly Update - September 2023

The Company's monthly factsheet as at 30 September 2023 is now available: https://awemtrust.com/factsheet/

The Company produced a NAV total return of 0.74% over the period 30 June 2023 to 30 September 2023, against a return of 1.12% for the benchmark index². Among other factors, stock selection was positive in small-caps while being negative in large-caps.

Key Contributors

30 June 2023-30 Sept 20231 Key Contributors	Ending Weight (%)	Total Return (%)	Contribution to Return (%)
Senco Gold	1.6	+106.7	106
Gokaldas Exports	0.8	+61.4	55
DBS Group Holdings	2.4	+11.8	25
Disco Corp	0.8	+23.4	23
Dodla Dairy	0.2	+22.1	21

Key Detractors

30 June 2023-30 Sept 20231 Key Detractors	Ending Weight (%)	Total Return (%)	Contribution to Return (%)
CIE Fin. Richemont	1.5	-22.5	-43
AIA Group	0.7	-15.3	-31
LVMH	1.6	-16.1	-29
Hermes International	2.0	-12.1	-28
Budweiser Brewing	0.9	-20.2	-24

Source: Factset. Past performance does not predict future returns. The performance calculation is based on GBP. Currency fluctuations will also affect the value of an investment.

¹ The proceeds raised from IPO were substantially invested as at 30 June 2023.

² Benchmark index - MSCI Emerging Markets Net Return Sterling (Bloomberg MGEF)

 Past performance cannot be relied on as a guide to future performance.

Key contributors

Senco Gold is the leading jewelry retailer in Eastern India with a strong leadership position in its home state of West Bengal. The key drivers include - (1) continued formalization of the large (US$70 bn+) Indian jewelry retail market; unorganized sector still has a 60% market share; most well-run organized national and regional chains continue to gain share from the unorganized players on the back of trust, design and aggressive store expansion, (2) advantageous competitive positioning; apart from Titan, Senco is the only other player in the industry to have a well-established franchisee model - this aids quicker expansion and shores up the ROCE profile, and (3) a solid, eager-to-learn and ever-improving management team led by Suvankar Sen, the son of the founder Shankar Sen. Senco was also among the early adopters of IT infrastructure across the supply chain (for artisans, franchise partners, store and inventory management), which has led to an improvement in operational efficiency. 

DBS, established in 1968, is the largest bank in Singapore, with more than 50% of the loan book originating outside Singapore, mainly from Asia. DBS has positioned itself firmly in the key financial hubs of Singapore and Hong Kong to capture the cross-border Asian trade and wealth management flows. Their Wealth Management AUM of SGD 320 bn is the highest among the three major banks based out of Singapore. The key competitive advantage is a healthy CASA ratio of ~56%, which provides DBS with a cheaper source of funds. The interest rate profile of the bank, good asset quality and cost control combined to deliver a >17% RoE in 1H23 for the bank. The stock outperformed due to the continued strong business performance.

Disco manufactures capital equipment for the semiconductor industry, the main products being grinders (to thin semiconductor wafers), dicers (to cut completed wafers into individual chips) and related consumables. Owing to its technical prowess, Disco commands a market share of more than 80%. Recent developments within the semiconductor industry, such as quicker than expected adoption of silicon carbide in electric vehicles, and the adoption of chiplets/advanced packaging have led to Disco's strong operating performance compared to its peers. Silicon carbide is amongst the hardest materials, and as such, dicing and grinding such materials takes longer, requiring more equipment and consumables. These factors have led to a resilient demand environment for Disco's products despite the weakness in the semiconductor sector. These reasons could have contributed to the recent stock performance.

Key detractors

AIA is a Hong Kong listed insurer with a presence in multiple emerging markets, including Hong Kong (35% of Embedded Value or EV), Mainland China (18% of EV), and Thailand (12% of EV), along with a growing presence in other ASEAN countries and India as well. AIA is primarily an agency-driven business with a focus on selling protection products. In partnership with South Africa based Discovery, AIA launched 'AIA Vitality', bringing the successful health insurance and loyalty program to its Asian markets. AIA maintains a prudent investment portfolio with 72% of the book in fixed-income securities (37% of which is in government bonds), while BB and below rated securities make up just 3% of the portfolio. The company's focus to return excess capital to shareholders is noteworthy, with USD 5.8bn returned in 2022. However, operational performance was likely affected by slower than expected economic rebound in China, which may have led to weak stock price performance.

LVMH is the world leader in luxury goods. Fashion & Leather Goods (Louis Vuitton in particular, but also Dior, Fendi, and Loro Piana) and Wines & Spirits (Hennessy cognac, Moet & Chandon, Veuve Clicquot) are the group's most important divisions and account for about 80% of the group's EBIT. LVMH is also present in Perfumes & Cosmetics, Watches & Jewellery and Selective Retailing. China accounts for almost a third of its total sales. LVMH's competitive advantage is its portfolio of iconic brands, which would be impossible to recreate in a few years as heritage is only built over time. The market share of the top five global luxury brands has been fairly consistent over time, and these companies offer exposure to the most attractive luxury segments, which have long product cycles and a strong investment value attached to them. Long-term growth of the global luxury goods industry will likely be in the high single digits, led by wealthy US and Asian consumers. LVMH, along with the rest of the luxury stocks, has pulled back recently as luxury spending in Europe and the US normalizes from the highly elevated levels seen over the last two years. Recovery in China since Covid restrictions were removed has also been slower than expected.

Budweiser Brewing has a 40% market share in the premium and super premium beer categories in China (accounts for 85% of its EBITDA) on the back of its leading brands like Budweiser, Corona, Hoegaarden, Blue Girl, etc. It also has a market-leading position in Korea (accounts for 15% of its EBITDA). As has been observed globally, most beer markets tend to premiumize over time, resulting in a moat for breweries that can manage brands well. This has also been the case in China over the last 5-10 years. In the most recent quarter, the flagship Budweiser brand (a premium brand in China) grew 20% yoy while Super premium brands grew 35% yoy. However, the operating performance in Korea was weak because its largest competitor, HiteJinro, launched a new brand. Consequently, the company had to increase its marketing spends. In summary, the company continues to perform strongly in its main business of China even as it faces a challenging year in Korea.

Top 10 holdings (as at Sept 30, 2023)	Country	% of NAV
1. Samsung Electronics	South Korea	5.3
2. TSMC	Taiwan	5.1
3. Hong Kong Exchanges	China/HK	3.0
4. DBS Group	Singapore	2.4
5. Naspers	South Africa	2.3
6. Alibaba	China/HK	2.2
7. Hermes Intl	France	2.0
8. Prosus NV	Netherlands	1.8
9. Kweichow Moutai	China/HK	1.6
10. Senco Gold	India	1.6
Total		27.3%

About Ashoka WhiteOak Emerging Markets Trust plc

Ashoka WhiteOak Emerging Markets Trust plc (AWEMT) is a UK investment trust seeking to achieve long-term capital appreciation primarily through investing in a multi-cap portfolio of equities that provide exposure to global emerging markets. Advised by White Oak Capital Partners Pte. Ltd, founded by Prashant Khemka with leading Emerging Markets investment experience. White Oak Capital Group has delivered an exceptional track record for its other strategies, and has £5.0 billion in assets under management or advisory⁴. Analytical approach integral to disciplined research process underpinned by proprietary frameworks OpcoFinco™ for valuation and ABLEx^TM for ESG research. The team at WhiteOak believes that emerging markets present potential for higher alpha. EM markets remain under-researched and inefficient. AWEM leverages WhiteOak's investment approach to capture the higher alpha potential in these markets. No fixed management fee. Manager remuneration is aligned with alpha generation and hence shareholders' interest. The Investment Manager is remunerated solely as a function of outperformance over the benchmark.

⁴ Data as at 30^th Sep 2023. AUM data refers to aggregate assets under management or investment advisory for White Oak Group.

Further Information

For further information on the Company's investment strategy and portfolio construction approach as well as details of the portfolio market cap, regional and sector composition please refer to the latest factsheet.

Investment Objective

To achieve long-term capital appreciation, primarily investing in equity and equity-related securities that provide exposure to global emerging markets.

Summary of Investment Policy

The Company shall invest primarily in securities admitted to trading on any stock exchange (which may include stock exchanges in Developed Markets) that provide exposure to companies that are domiciled in Global Emerging Markets (EMs), or that are domiciled in Developed Markets but at the time of investment, derive a majority of their economic value, revenues or profits from, or whose assets or cost base are mainly located in EMs.

The Company's LEI is 254900Z4X5Y7NTODRI75

For further information:

Company Secretary

[e-mail]	[phone]

WhiteOak Capital Partners Pte Ltd.

Prashant Khemka	Via Buchanan
Fadrique Balmaseda
Ben Hayward

Ellora Partners

Mark Thompson	[phone]
Eddie Nissen	[phone]
Oliver Kenyon	[phone]

Buchanan

Henry Harrison-Topham	[phone]
Henry Wilson	[e-mail]
George Beale

 

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