Merlin Fidelis

Merlin Fidelis Asset Management manages the Merlin Fidelis Emerging Markets Strategy. We are authorised to accept funds from Professional Investors only. Professional Investors can contact us for access to Fund information including quarterly commentaries and performance updates:

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Quarterly Commentaries

Available to Professional Investors on request – REQUEST ACCESS, as above.

December 2025

Australian sporting hero, Donald Bradman, possessed an “edge” which might translate to investment skill as: above average stock picking, carefully considered position sizing, and risk management. As a winning formula this is ironically short on heroics but can nonetheless be ruthlessly effective.

September 2025

EM investors must navigate cyclicality and sudden sentiment shifts. The MSCI China index is surging, again, demonstrating both highly cyclical earnings expectations and the importance of considering very different valuation scenarios. Gold, another asset prone to very different pricing regimes, also offers risk-weighted opportunities using this approach.

June 2025

We anticipate “customer experience” to be the battleground for adoption of Artificial Intelligence by the most successful companies. We also discuss the recent shift in appetite for Korean stocks and Hong Kong landlords – sensitive to somewhat fickle assumptions – and highlight the possibility for an unpopular “melt-up” in Chinese stocks.

March 2025

Equity markets are being roiled by the AI arms race and the US trade tariffs. The DeepSeek-R1 AI model from China has rattled US tech stocks and forced a reassessment of China’s technological prowess and its “investability”. As for international trade, the big players are seeing it weaponised. Reindustrialisation (ex-China) needs a funding source, while China needs a consumer-driven economy.

December 2024

US equity allocation is the elephant in the room at 66% of the MSCI ACWI; the index weight of seven “Mag 7” stocks is twice that of the entire Emerging Markets. A 10%pa return from US equities over the next decade would require broad market capitalisation to be roughly 300% of GDP – twice the level recorded in 2000. In the more likely alternative scenarios, should markets demand asset reallocation, EM equities are a prime beneficiary.

September 2024

Stock markets are driven by flimsy views of an imagined future. Our valuation approach captures the range of views that might prevail, which is useful for cyclical companies and for identifying events that might surprise. Momentum is another approach that can work well, but it can be high-risk just when it is most alluring.

June 2024

“Scarcity” is a feature of attractive companies and a rich vein of investment ideas. Meanwhile some capital return Brilliance from China, and Japan-envy in Korea has the potential for similar “Value-up”. Korean institutions are better placed to push for cultural change, where attempts by foreign investors to lift “shareholder returns” have so far failed.

March 2024

How to prioritise new investment ideas, from multiple sources, without “filtering out” too early? New ideas take time, boiling them down to their key drivers, distilling them into robust valuations; as insights are gleaned the priorities are reordered. But, drawing from an inventory of ready ideas, portfolio decisions can be reactive even when there are sudden shifts in entire markets.

December 2023

Listed companies are large and complex, but most investments boil down to just a few issues that really matter. We discuss a curious case in ESG. Also, the banking sector which is seemingly homogeneous, and yet on simple valuation multiples can be split into “value” and “growth” stocks, with both types held in the portfolio.

September 2023

For our entire investment careers there has been a fundamental rule, learnt also by industries the world over: don’t compete against Chinese capital. But funding is underpinned by the conversion of ever-rising land values into industrial subsidies. If China’s current property crisis brings reform, then the repercussions could be profound for equity investors in China and beyond.

June 2023

Emerging Markets’ share of the global equity index has fallen because of extreme US equity market outperformance. Many investors are underweight EM even at these depressed levels, last seen during the late 1990’s Asian Financial Crisis. It’s plausible that EM’s index weighting doubles over the next decade and triggers meaningful shifts in strategic asset allocations.

March 2023

While EM is more than China, investors are focused on the tail risk of Russia-like sanctions, and as a result are heavily overweight DM assets. But this is a problem for more likely, yet neglected, scenarios. China’s two-decade capacity expansion has suppressed EM profitability and boosted DM valuations, but these forces are slowing and could reverse.

December 2022

The past three years has been the best period for active management within EM equities in 20 years. We suspect that it has been enjoyed by so few because the preceding years rewarded inactivity. We warn that many asset owners are likely to underperform the EM index in the years ahead, missing much of the plainly evident rewards offered from asset allocation.

September 2022

We contend that durable investing in Emerging Markets equities is best achieved with a long tail of fairly small positions, dismissing a key argument for concentrated portfolios that ‘no investment manager can know more than 20 or 30 companies’. The ‘Kelly criterion’ mathematics of position-sizing shows that careful handling of risk and volatility can significantly improve long-term returns and reduce downside.

June 2022

Sometimes we see extreme prices, meaning that an extreme outcome is expected while other sensible outcomes are dismissed. We feel strongly that Emerging Markets are desperately overlooked amid the risk aversion. We hope that the “10 reasons active investors should be bullish Emerging Markets stocks” resonate amid the apparent chaos.

March 2022

Tail risks – which do sometimes happen – are not absent from durable portfolios; they are instead managed via tempered position-sizing and diversification. With Russia’s invasion of Ukraine, markets are now grappling with war, the weaponization of capital and an energy crisis. Amid the turmoil, we see opportunity in Emerging Markets equities.

December 2021

Behavioural investment advantages are the most durable, systematically exploitable, and least likely to be arbitraged away. So naturally we are deeply interested in the behavioural traits that underpin how investment teams function, process uncertainty, reach decisions and take action. Actively navigating the vast Emerging Markets universe is more critical than ever. We see plentiful opportunities just as investors are questioning their allocation to EM.

September 2021

Some are even asking if investing in Chinese stocks (a third of the index!) is akin to gambling, where the outcomes are so unpredictable it is close to a heads-or-tails bet. Investors want the sure wins and hate this kind of uncertainty; they often pay a high price for perceived certainty while selling uncertainty at giveaway prices. We dislike uncertainty too, but we force ourselves to look hard whenever something is called ‘uninvestable’.

June 2021

Vaccine availability will be highly favourable for Emerging Markets in the second half of this year as surplus supplies from the US and Europe become available, rising from around 20 million doses per month (Jan-May) to around 700 million doses per month (Jun-Dec). On current trends there is every reason to believe that the worst is past, and a period of strong earnings from EM companies is imminent.

March 2021

As stewards of your capital, fiduciary duty is our most serious undertaking. Increasingly, fund managers are being asked to also address the tragedy of the commons – known as ‘ESG’ (environmental, social and governance standards) – where over- exploitation of shared resources for individual gain threatens their sustainability. Regulation is the usual solution, but that quickly becomes difficult across multiple jurisdictions.

December 2020

‘Value rotation’ was by far the most frequent narrative for the equity markets. Given the huge performance disparity built up over years between entire sectors labelled ‘growth’ and ‘value’, as discussed in the September quarterly, the relative pricing remains extreme. We ain’t seen nothing yet. Most asset-owners and fund managers simply dread this prospect, their portfolios heavily skewed to the long march of Internet stocks’ market leadership.

September 2020

THE DIE IS CAST! All the essential ingredients are in place for a major change in stock market leadership that will define the next investment cycle. Without fanfare, the preceding commodity boom (1999-2011) passed the baton to the current internet technology leaders. As with all prior investment cycles, the next will also start with little bell-ringing.

Insights