Foreword
Our strategy has always had low levels of turnover, so portfolio activity alone does not provide a full picture of the team's wide-ranging research effort. This research review aims to give you greater insight into how we assess businesses and decide which to add to our emerging market watchlist and strategies.
Some of the research activity discussed here has led to portfolio change; other areas may require further work, which can sometimes lead to a decision not to invest in a particular company or sector. However, it is important that we continuously challenge ourselves to understand and assess new opportunities across all of the regions and sectors making up our investment universe and avoid falling in love with companies we already own.
Maintaining an open mind helps ensure that the portfolios we manage can meet the challenge of the future and increases the likelihood of them meeting our long-term absolute return aspirations.
What's in this Review?
The often quoted, ‘May you live in interesting times’, came to mind this year as several events many developed market investors haven’t experienced in decades – war, inflation, currency collapses and rising autocracy – came to the fore. We are used to seeing crises in emerging markets, but the rest of the world is much less familiar with such ‘interesting times’. What has been different this year is the global nature of these woes; it’s an unusual year when the Mexican peso and Brazilian real are two of the best-performing currencies against the dollar. The Japanese yen, Swedish krona and British pound are among the worst1.
Aside from highlighting our research this review also makes the case for investing in emerging markets. We believe, and can evidence, that our universe contains some of the best businesses anywhere in the world, something highlighted in ‘Global emerging leaders – it’s not all about low-cost’.
The management talent we come across through our company meetings illustrates that the developed world is not exclusively where some of the best management teams are based. TSMC is a good example of this; see ‘A closer look at TSMC’. As long-term investors we also believe the demographic tailwinds mentioned in ‘India homegrown winners’ will pay dividends, but simply taking what has worked in Europe or the United States and pushing it in India or China may not be the answer.
Our work on and conversations with management teams have also brought to mind the depth of experience in handling tough times. Inflation, which hasn’t reared its ugly head for developed countries in any meaningful way since the 1970s, is something that emerging markets live with constantly. This skillset is discussed in ‘The importance of pricing power’. We also think a lot about resilience, the ability of a business to withstand external shocks. For a long time, consumer staples have formed the backbone of our portfolio because they are a part of people’s everyday lives whatever the weather. Our work on computer gaming in ‘Opportunities in gaming’ has shown that entertainment may also display some of these characteristics.
We hope these articles are useful in giving some insight into what we have been doing over the past year and we would welcome any comments or questions you might have, please do feel free to get in touch.
1 Bloomberg
