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Emerging to succeed with research
By Rob Griffin
Analysing a company's track record is the most important part of the investment process for Jonathan Asante, who manages the First State Global Emerging Markets Leaders Fund with Angus Tulloch. "Some management teams will give you the best spiel you have ever heard - and then you find out that they have not delivered cash flow for three years," he says. "We also look to see if they have ripped shareholders off in the past."
This research consists of meeting management teams, and paying experts to delve into a company's past. The clues found in old figures can indicate a company's prospects. "The numbers are quite hard to get as analysts and investment banks usually only keep two years of history and five of forecasts," he says. "That is why we ask independent data providers to source this information on our behalf."
The aim of the £260 million First State Global Emerging Markets Leaders fund is long-term capital growth by investing in companies in emerging markets, including those listed on developed market exchanges. Launched just under five years ago, it is benchmarked against the MSCI Emerging Markets Index and has been awarded an AA-rating from OBSR and an A from both Crosby Forsyth and S&P Fund Management.
"We like to find the companies first and, if they are cheap enough, we will try to understand whether the tide is going to go with us," he explains. "It is the identification of the management team and company that comes first." The search for stocks is based on the analysis of three areas: the people, the type of business, and its financial position.
"We prefer the management to have interests aligned with ourselves," he says. "In addition, we dislike cyclical businesses and prefer companies that don't have a lot of risky debt."
This philosophy means the fund has low weightings in energy stocks because many tend to be state-owned national champions. "Although they may have lucrative exploration rights, they are simply not run for profit," explains Asante.
In contrast, Asante likes food retailers and beverage businesses. "I feel they are more predictable and have all the features we like," he says. "They tend to have very good track records, recognised brands and are conservatively run with good cash flows."
They also tap into the real emerging market story. "The underlying theme is that people are getting richer, spending more and saving less," he explains. "Savings rates are very high in Asia and that's what you're really buying into in emerging markets."
There are currently 60 holdings in the portfolio. Asante estimates the annual turnover to be about 50%: "It has been slightly higher recently because markets have gone up so much that we have been forced to sell some positions."
Asante is confident of finding enough attractive companies to populate the fund. "The market declines this year have created opportunities," he says. "There are bargains out there and we remain focused on well-managed, reasonably valued, domestic consumption stocks."
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