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THE INVESTOR
THE INVESTOR CENTRE
FINAL WORD
Can you explain your ‘multiple eyes’
approach to investment management?
Roger Edgley:
Every company is vetted by
many di erent analysts and portfolio managers
– each using the same philosophy.Wasatch
encourages collaboration within the team so
that lessons learned about industries, sectors,
countries and business models can be applied
to each investment.This openness leads to
multiple eyes viewing each company and is a
key component of our competitive advantage.
Given the sophistication of these
markets, is the research function
even more vital for an emerging
markets investor?
Ajay Krishnan:
Emerging markets are
going through a period of tremendous change.
They also tend to be very complex, so you
not only have to deal with the companies and
the competitive pressures they face, you also
have to pay attention to politics, as you can
see with recent events in Ukraine orTurkey.
You have to marry business dynamics and the
macro environment and that can only be done
by getting on the ground and doing research.
As a group we’ve had about 2,000 company
meetings in the past couple of years.
Could you describe how your global
approach looks beyond the BRICs?
AK:
We have found that smaller, non-BRIC
countries are particularly attractive, because
companies found in the smaller emerging
countries tend to have greater exposure to
domestic demand. By comparison, traditional
emerging markets managers tend to heavily
weight the BRIC economies, which results in
a portfolio with exposure to global nancials,
energy, materials and industrials.These
sectors within the BRIC markets tend to
be more highly correlated with developed
market returns.The Emerging Markets
Equity portfolio seeks to be less correlated to
developed markets than the BRICs.
Does your approach favour businesses
with a certain market cap or those in
speci c industries/sectors?
AK:
Large-cap stocks are widely covered and
are heavily invested into by many emerging
markets funds. Small-caps can be illiquid and
di cult to access.While our strategy is an
all-cap approach,Wasatch believes investors
can nd both ine cient markets and liquidity
through a concentrated portfolio with
signi cant allocation to mid-caps. Companies
that trade between $3 billion and $20 billion
are the‘sweet spot’ for the portfolio, and
o er su cient liquidity for this concentrated
approach. However, because they are smaller
than the companies typically focused on
by traditional emerging markets investors,
there are still ine ciencies to be exploited.
The portfolio seeks to minimise volatility by
investing in companies tied heavily to local
market demand as opposed to exports or
global cyclicals.
RE:
The attraction of small and mid-
sized companies is that they represent the
entrepreneurial aspect of the economy.They
tend to be innovative where there’s very often
substantial headroom, as we like to call it, in
the markets they’re in.
Theeyeshave it
Ajay Krishnan and Roger Edgley from
WasatchAdvisors, recently appointed to manage
the new St. James’s Place Emerging Markets Equity fund,
explain their approach to investment
C
ompanies positioned to take advantage
of increasing domestic demand in their
home countries continue to account for the
majority of the portfolio.We’re particularly
optimistic about such companies in
India. In addition, India should bene t
because prime minister Modi’s Bharatiya
Janata Party – having gained a majority
in parliament – is likely to implement
the economic and infrastructure reforms
necessary for the country to operate closer
to its full potential.While construction
and other infrastructure stocks initially
received a substantial short-term boost
from the election, we prefer to invest
in higher-quality Indian companies that
are well situated to reap the longer-term
bene ts of rising consumer incomes and an
expanding middle class.The Philippines is
another country whose nascent consumer
economy presents opportunities we view
as attractive. Low debt levels across all
economic sectors – consumer, corporate
and government – allow ample room
for credit expansion as a source of future
growth.The portfolio is underweighted
in Russia, China and Brazil.We exited
completely from Russia, mainly on
concerns about the unpredictable nature of
the geopolitical situation there.Although
we remain somewhat underweighted
in Brazil, we recently increased our
Brazilian holdings because we believe the
government may pursue more business-
friendly policies following the presidential
election in October.
Ajay Krishnan and Roger Edgley
WASATCH ADVISORS
Emerging Markets Equity
Indian reforms should help country
to operate closer to its full potential
We’re particularly
optimistic about such
companies in India
WASATCH ADVISORS
Founded in 1975 and based
in Utah, US,WasatchAdvisors
is an employee-owned company
with $19.3 billion of assets
under management. It has a
well-diversified group of both
institutional and retail clients.
