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Asset classes

Our process

Our Emerging Markets team has an established investment process built around country allocation and stock selection by regional and country specialists. We define our investment universe broadly as: the World excluding Developed Markets.

Our analysis suggests that where inefficient markets are concerned, a more substantial proportion of a company's total return is explained by country-related factors. The team therefore aims to add around one-third of value through asset allocation biases and the remainder through stock selection.

This schematic illustrates a simplified version of our investment process. Given the complexity of Emerging Markets investing, our strategies are validated using a multi stage process:

  • The asset allocation process begins with country analysis centred on these variables:
  • Interest rates and liquidity
  • The economy and corporate earnings
  • Politics and the outlook for political reform.

We identify where the consensus thinking lies in terms of these drivers – and where our views differ. Where they do, we identify opportunities to adopt a contrarian approach. Our final conviction level is based upon our fund managers’ assessments of the risk that their qualitative market or economic forecasts are wide of the mark.

  • We focus on the individual generators of investment return at a global level, rather than on all investment components on a regional or single-country basis. Other opportunities such as special situations, thematic investment, management engagement and small-cap investing now add to the potential pool of factors contributing to out-performance of the index.
  • Each strategy is screened to filter the investment universe for factors such as liquidity, resulting in a meaningful number of potentially interesting ideas.
  • Information gathering and sharing for all our strategies is assured through the deployment of two core investment tools. These are:
  1. OneNote™: we have customised Microsoft’s OneNote™ to create a single repository for information which both stimulates debate and acts as a permanent record of investment decisions
  2. CAS (Capital Appraisal Sheets): this Excel™ based tool creates a framework for analysing where we diverge from the consensus on individual stocks.
  • Fundamental analysis is a key component in stock selection and is the main driver of fund manager conviction. Bespoke research projects are paramount in ensuring the robustness of our process. We use a network of independent sources in addition to input from our investment colleagues around the globe. Company visits are essential to gaining insight into businesses, and we meet regularly with the management of the companies we invest in.
  • Portfolio construction – alongside superior idea generation – represents our most important source of targeted out-performance, and the area where we expect to identify the greatest potential for mispricing by the market. Portfolio construction varies for each strategy; however the common principles of high conviction and focused investing underlie them all.

 

 

 

 

 

 

 

 

Note: GEM in the illustration above represents global emerging markets