Investment boutique Dawn Global Management has unveiled its inaugural product with the launch of an ETF providing active exposure to five so-called ‘Asian cub’ emerging and frontier market economies.
CUBS provides exposure to stocks listed on exchanges in Bangladesh, Indonesia, Pakistan, the Philippines, and Vietnam. (Ho Chi Minh Stock Exchange pictured).
Listed on NYSE Arca, the Asian Growth Cubs ETF (CUBS US) is the first actively managed ETF to focus on the fast-growing markets of Bangladesh, Indonesia, Pakistan, Philippines, and Vietnam.
These five economies have each achieved GDP growth in excess of 6% per year since 2000 with Bangladesh and Vietnam having delivered positive GDP growth for 40 consecutive years – including in 2020.
However, these markets remain difficult to access for most foreign investors due to patchy ETF coverage – both in terms of the availability of ETFs offering dedicated pure-play exposure to these countries and the magnitude of exposure to these countries delivered via broad market emerging market ETFs – and few depositary receipt listings.
CUBS aims to address this.
According to Maurits Pot, Founder and CEO of Dawn Global, “The passive, index-driven emerging market ETF asset class is concentrated on six countries (the BRICs + Korea + Taiwan) overlooking the attractive and sizeable opportunity in the next generation of emerging and frontier growth markets. The index-driven market-cap weighting approach risks skewing portfolio construction to current size, not future growth potential.”
“Yet there is a compelling long-term secular growth story in five Asian countries with a combined population of more than 860m people, expected to grow to one billion by 2035, and with attractive demographics,” adds Pot. “The average age is 28 in these markets with a burgeoning middle class and accelerating digital adoption.”
Dawn Global believes active investment management is required to identify the most compelling growth companies in these less covered markets as well as to mitigate company and governance risk.
Investment process
The fund is managed by Pot, who is principally based in London. Pot has previously worked at Goldman Sachs and at commodity trader Vitol. He is supported by three analysts based in Asia: Nihad Kabir in Bangladesh, Tanvir Ghani in Hong Kong, and Hasnain Malik in UAE.
The fund will invest at least 85% of its net assets directly in securities of issuers listed on exchanges in Bangladesh, Indonesia, Pakistan, the Philippines, and Vietnam and up to 15% of its net assets in depositary receipts representing such securities or ETFs that are listed on those same exchanges and invest in securities in which the fund may invest directly.
In determining which securities from these five countries to include in the portfolio, Pot and his team employ a three-stage investment process.
The first stage is a systematic screen that removes certain securities from the universe of eligible stocks. This includes the exclusion of companies operating in or relating to defence, fossil fuels, gambling, mining, and tobacco.
Also removed are companies with a market capitalization of less than $130 million or those with a free float of less than 10%. Similarly, companies that do not meet certain liquidity requirements (as measured by average daily traded value) or quality thresholds (including revenue growth, earnings per share growth, gross margin, earnings before interest and taxes margin, and net margin) are also removed.
Highly leveraged companies and/or those that are in breach of borrowing covenants or are close to default are also eliminated.
The second stage of the investment process comprises a discretionary review by the fund management team of the companies that passed the first stage of the investment process, including a bottom-up business review, a valuation review, and a management review.
The third stage is the application of a risk framework to the companies that passed the second stage of the investment process. In this stage, companies that are alleged to have been engaged in financial fraud or are the target of a takeover are ejected.
The fund currently holds 43 stocks but may hold up to 80. Individual stocks are equally weighted. The portfolio is reviewed quarterly and rebalanced twice a year. It is presently tilted towards healthcare, TMT, consumer goods, and financials.
The fund comes with a net expense ratio of 0.99% and has been brought to market in partnership with US white-label ETF outfit Exchange Traded Concepts.
Dawn Global Management was incorporated in England, United Kingdom, in March 2021.