Tundra fond of Pakistani market

CEO Jon Scheiber and Portfolio Manager Johan Elmquist explain how much Swedish citizens look at Pakistan

KARACHI:

More than 5,000 miles away from Karachi, residents of three municipalities in Sweden are particularly interested in the long-term stability of Pakistan and its economy.

They want Pakistan to witness economic growth and prosper. And why wouldn’t they? Their municipalities have recently ‘seeded’ a mutual fund that has invested one-fourth of its assets under management in the Karachi Stock Exchange (KSE).



In simple words, these municipalities have given their money to Tundra Fonder, a Swedish asset management company, which set up a new fund last August that currently allocates its largest chunk to the Karachi share market.

In fact, Tundra has been earning huge returns for its Swedish investors by investing in shares listed on the KSE since 2011. The company manages six mutual funds that invest in a combination of frontier markets economies, including Pakistan. One of the six mutual funds invests exclusively in Pakistani shares.

Speaking to The Express Tribune in their recent visit to Karachi last week, CEO Jon Scheiber and Portfolio Manager Johan Elmquist said Tundra currently has as much as $145 million invested in the Pakistani equity market through its various funds.

“Tundra Pakistan Fund is our largest fund by far,” said Elmquist, adding that the company is also “heavily invested” in Pakistan through its Frontier Opportunities Fund. In total, the share of Pakistan investments in Tundra’s overall assets under management is 68%, he said.

“We are long-term investors and do not trade equities on a daily basis unlike a lot of local investors. We tend to be overweight on consumer and infrastructure-related companies – sectors that have exposure to urbanisation. We tend to be underweight on more cyclical sectors, such as commodities and energy,” said CEO Scheiber.



The investment strategy seems to have worked well for Tundra’s investors. Tundra Pakistan Fund has outperformed its benchmark, MSCI Pakistan Net, by an astonishing 62.5% (in dollar terms) since its inception in October 2011. No wonder that Tundra’s investments in Pakistani equities have grown at a compound annual growth rate of 250% since January 1, 2012.



According to Elmquist, partners of Tundra did not have any seed money when they started the asset management company. This means all the money Tundra has invested in frontier equity markets, including Pakistan, has actually been raised through retail and institutional clients based mainly out of Sweden.

Five of Tundra’s six mutual funds feature in the Swedish government’s pension system. Ordinary citizens can choose and invest a portion of their pension in any of the funds through that platform.

“We have about 40,000 Swedish citizens – retail investors – who have indirect exposure to the Pakistani stock market through our Pakistan Fund and Frontier Opportunities Fund,” said Scheiber.



Tundra fighting the recent bearish trend

After a bull run of three years, however, the Karachi bourse has undergone a correction this year. One of the many reasons for a decline in share prices in 2015 is the unrelenting outflow of foreign investments from the KSE amounting to $285.5 million to date.

Returns of Tundra Pakistan Fund have also taken a hit in the wake of the massive outflows of international funds from the KSE because of an impending hike in US interest rates. The year-to-date return of the fund has been -5.2% versus the benchmark return of -15.2% in dollar terms.

But contrary to the general trend, assets under management of Tundra Pakistan Fund have actually increased since the start of 2015. Simply put, Tundra’s clients kept investing in Pakistan although the rest of foreign investors chose to pull out their money from the KSE. In percentage terms, the increase in Tundra’s Pakistan investments since January 1 has been 33%.



“We have seen a small redemption on the retail side in the past year. But thanks to the investments from the institutional side, we have had a net inflow,” Scheiber said, adding that some major investors with “a lot of money” have moved into Pakistan Fund this year.

He said the only thing that can “severely hurt” the sentiments of foreign investors and push them out of the KSE is a “substantial deterioration” in the security situation.

“We have invited a lot of foreigners (to visit Karachi) since we started more than four years ago. So far only two of them – both from the United Kingdom – have actually visited Karachi,” he said, adding maintaining law and order is crucial in attracting foreign investors.

The writer is a staff correspondent

Published in The Express Tribune, December 7^th,  2015.

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