Active Fundamental Equity
Next Gen Emerging Markets Strategy
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Next Gen Emerging Markets Strategy |
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Active Fundamental Equity
Next Gen Emerging Markets Strategy
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Next Gen Emerging Markets Strategy
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We believe investors are overlooking large countries with rapidly growing consumer markets in regions such as Southeast Asia and Africa. These markets resemble the original promise of emerging markets—secular growth opportunities in large, overlooked countries with low correlations to global equities. We firmly believe that identifying quality companies–those with high returns on invested capital, a sustainable competitive advantage to protect those returns, and outstanding management teams—and acquiring them at a reasonable price, allows investors to harness the power of compounding growth over the long term. Outstanding businesses are difficult to find, and therefore we aim to construct a concentrated portfolio of companies that are benefitting from multi-year growth tailwinds. We believe this portfolio provides investors with access to the next generation of emerging markets.
Access to Overlooked and Uncorrelated Markets |
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Our investment universe, including Vietnam, Bangladesh, Indonesia and Nigeria mirrors the early days of emerging market investing. We focus on countries with sizeable, fast growing consumer populations that are in the early development stages. These markets have largely been ignored by investors and represent a small fraction of mainstream EM and global equity indices but can offer less correlated returns at attractive valuations. |
Secular Growth Opportunities |
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The portfolio is diversified across nascent secular growth themes identified through our travels and research. Across our universe of large, young and fast-growing consumer populations, legacy infrastructure is often poor or non-existent. This is likely to lead to fast evolving trends in industries like fast moving consumer goods, health care and financials. We believe these themes offer a long runway for growth where companies with a superior value proposition and sustainable competitive advantage can benefit from or drive this development. |
Consistent, Accountable Process |
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Using a simple fundamental framework that encourages transparency and accountability, we look for companies with appealing economics, a sustainable competitive advantage and a candid, competent management team. We look to purchase these companies at a substantial discount to fair value. We use a checklist to assess each part of the thesis independently to ensure we are analyzing the company on its merits, not our intuition, to help avoid biases. |
| 1 | Idea Generation |
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We conduct primary research through frequent travel, tapping into networks in the countries we invest in, reading extensively and relying on pattern recognition of similar themes that have developed in other parts of the world. As “infovores,” we constantly seek out new and interesting ideas across a variety of mediums to identify the most promising investment opportunities in our universe. |
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| 2 | Stock Selection |
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We follow a consistent and repeatable process. First, we assess the business economics (return on invested capital, addressable market, unit economics) to seek multi-year opportunities that can compound returns at strong rates. Second, we study whether a sustainable competitive advantage exists to help protect that opportunity. Then we model future free cash flows to determine whether the business can be purchased at a substantial discount to fair value. Next, we speak with the management team, looking for candid and outstanding teams aligned with minority shareholders. Finally, we use a checklist to ensure we are analyzing each piece of information objectively to help minimize mistakes. |
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| 3 | Portfolio Construction |
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We manage a concentrated portfolio of 30 to 50 names. We establish a position when the stock is trading at an attractive valuation (discount to fair value), with initial position sizes of around 1%. Liquidity and volatility of the country and stock are important considerations. We conduct ongoing analysis of the portfolio’s exposures, correlations and risk drivers to ensure the portfolio is well-balanced and a reflection of our high conviction ideas. We look to hold positions for two to three years. |
