What are you trying to achieve for investors and what role could your fund play in an investor's portfolio? How do you structure this fund?
As quality growth investors, we specifically look for companies with outstanding management teams, attractive growth opportunities, sustainable business models and strong competitive advantages that ultimately lead to consistently strong financial performance. We aim to grow our clients' capital by investing in businesses with structurally competitive advantages that allow them to capitalise on long-term secular trends across the emerging markets universe.
Whether it is the expansion of branded economy hotel chains across China's lower-tier cities, the formalisation of the Indian economy, the continued financialisation of the South African population, or the growing adoption of enterprise resource planning tools by Brazilian small- to medium-sized enterprises, we believe there are plenty of attractive investment opportunities in emerging markets. Yet, these kinds of businesses are often underrepresented in the broader indices, which is why we believe a bottom-up, active investment approach adds significant value.
What are the big opportunities and risks for your strategy in 2025?
The economic uncertainty has only increased following the actions of the newly elected government in the US. We don't pretend to know the end-result of the significant disruption to global trade nor are we trying to predict such outcomes. However, it is in times like this that the conservative approach with which we manage our portfolios comes to the fore.
Although the current disruption might have an impact over the near term, the majority of our holdings have net-cash balance sheets, which provides them with a significant opportunity to invest counter-cyclically or use mergers and acquisitions, as opportunities arise, to gain market share. Moreover, the owners and managers of our investee companies have experienced several such periods of disruption, most recently during the pandemic. They have established track records of navigating the uncertainty well.
Overall, we believe our holdings in market-leading businesses are likely to remain resilient through this period, and the long-term outlook for Asia and emerging markets, led by secular growth trends and underpinned by rising incomes, remains unchanged.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
One example is Dino Polska, which operates a proximity supermarket chain throughout Poland, serving millions of customers through its network of over 4,000 stores. The company's competitive edge stems from what we consider one of the most efficient retail models in emerging markets, combining carefully selected store locations in areas with as few as 3,000-4,000 inhabitants, a curated assortment of fresh and branded products, and vertical integration in meat production.
Another example is Regional, the 10th largest bank in Mexico. Regional's management team is well seasoned in the banking business, and the bank's long-term track record since listing in 2011 has been strong. Asset quality has remained in check (its 10-year average non-performing loans (NPL) ratio was 1.5%, which is best-in-class), and book value has compounded at 17% since the initial public offering (IPO), without any equity raisings. This is largely due to its risk-aware culture and superior SME franchise, which should have many good years ahead of it, in our view. Structurally, Mexico is one of the most attractive banking markets in emerging markets due to the size of the economy, the consolidated nature of the banking sector, and low financial penetration – particularly in SME lending (Regional's focus area), which implies plenty of room to grow.
Looking for opportunities in GEM: https://www.fssaim.com/uk/en/intermediary/insights.html
