Strategies
Active Fundamental Equity
Next Gen Emerging Markets Strategy
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Next Gen Emerging Markets Strategy |
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Strategies
Active Fundamental Equity
Next Gen Emerging Markets Strategy
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Next Gen Emerging Markets Strategy
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The team believes that within the universe of large but overlooked markets across emerging and frontier markets, digitalization is starting a revolution that will provide compelling investment opportunities with multi-year compounding benefits.
The team has identified six investment themes related to digitalization from where they source these opportunities, ultimately seeking strong absolute returns on capital. Given the lack of legacy infrastructure in these markets and the large and tech-savvy young populations, investors may be underestimating the potential value these companies will create.
Focus on Overlooked Markets |
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Our investment universe includes frontier and small emerging markets which have largely been ignored by investors and represent a small amount of the MSCI Emerging Markets Index. This universe of Next Gen emerging markets have historically low correlations to global equities, offering diversification benefits at compelling valuations. |
Growth in the Next Generation |
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We aim to capture the next generation of the digital revolution, which is taking off in these overlooked markets. We focus on six promising emerging markets themes, ranging from digitalization to green tech and unmet service needs, building a concentrated portfolio of high-quality Next Gen emerging markets companies. |
Consistent, Accountable Process |
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Through bottom-up fundamental analysis, we look for appealing economics, which we understand through a combination of attractive unit economics, high returns on invested capital, and a sizable addressable market. We identify a company’s competitive advantage or moat and seek to understand the core competencies that make a company successful in the industry. We use a checklist to assess each part of the thesis independently and ensure we analyze the company on its merits, not our intuition, to help avoid biases. |
| 1 | Idea Generation |
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We conduct primary research, tap into our comprehensive network in the countries we invest in, and travel frequently to identify these Next Gen themes and the most promising stock opportunities within each theme. There are currently six themes in the portfolio: “the smartphone is the new bazaar”, “the rise of the emerging markets creatives”, “the world has a new favorite pastime”, “old problems new infrastructure”, “the Next Gen franchises”, and “sustainable development”. |
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| 2 | Stock Selection |
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We do a deep dive of the most promising stock ideas within those themes: we approach company analysis like business owners trying to understand what defines success in the industry, the market opportunity, the unlevered returns of the business, unit economics, capital needs, risk, the sustainability of returns (i.e. there is a competitive advantage), strategy, and the value of the business. We look for companies that face a multi-year opportunity to create value for investors. We use a checklist to make sure we covered all the important topics supporting the investment decision. We debate the investment thesis for owning the stock, contrasting it with our opportunity cost, market expectations, and our experience. |
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| 3 | Portfolio Construction |
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We manage a concentrated portfolio of 20 to 40 names. Some of the companies we own have multi-year opportunities ahead of them, so we expect to remain shareholders for many years until the opportunities fully materialize in the stock valuation. We minimize risk by holding a concentrated portfolio of companies with secular growth stories that we seek to understand very well. Position sizing is a function of conviction, liquidity, volatility, and return expectations. Opportunity cost of capital is an important consideration—the team consistently monitors position sizes and will adjust sizing as conviction, price levels and opportunity costs between investments are re-evaluated. |
