F
ollowing an exceptionally strong 2013,
equity markets continued to climb in
the rst three quarters of 2014. Such strong
market appreciation in the recent period,
as well as the past few years, has made it
harder to nd attractive investments.Today
there are no longer any obvious sources
of value.We have to look much harder
to nd an attractive investment than we
did a few years ago.While this may sound
discouraging, it is more characteristic of
a normal operating environment – one
that we are more accustomed to. Because
valuations have increased and a more
positive economic outlook is priced into
most businesses, nding a company that
can grow is more important than ever.
While the portfolio’s performance has been
strong and many of the businesses have
appreciated year-to-date, the investment
team has been active, ensuring the portfolio
continues to represent our best ideas.The
portfolio looks materially di erent than it
did even a year ago because we have sold
businesses that have performed well, such as
Drew Industries and ManpowerGroup, and
reallocated capital to businesses with better
long-term prospects, such as Kerry Group
and Koninklijke Philips NV (Philips).As we
continue to seek out investment ideas based
on our proprietary insights, we believe the
portfolio is well positioned for the future.
EDGEPOINT
Satellite manager: Global Equity
Portfolio has different look to a year
ago in search for long-term prospects
We have to look
muchharder to nd
attractive investments
Tye Bousada and Geoff MacDonald
T
he strong recent performance of the
MSCI Emerging Markets Index means
that after a weak start to the year, and a
dismal 2013, the index has outperformed
the MSCI All CountryWorld Index year-
to-date. Of the major emerging markets,
India, SouthAfrica, Indonesia,Turkey and
Brazil have held elections this year.Across
the asset class, the prospect of political
change is being interpreted favourably by
stock markets, particularly in the shares of
state-owned companies that could be the
most immediate bene ciaries of reform.
In this environment we would fully expect
the fund to continue to lag the benchmark
index. In the long run we remain con dent
that the privately run companies that
we predominantly invest in stand to be
the bene ciaries of improvements in
the transparency of judicial systems, the
strengthening of the rule of law and a
greater distinction between the roles of the
public and private sector in the emerging
world. Entrepreneurial, owner-managed
companies that are less bound by political
considerations will be far better able to
bene t from the commercial opportunities
created by the opening up of industries and
the rolling back of tari barriers. Recently,
we have added to our position in Remgro,
a privately-owned SouthAfrican company
which has successfully negotiated its way
through drastic changes in the political
environment over the past 30 years.
FIRST STATE
Global Emerging Markets
State-owned companies could
benefit from global political reforms
The prospect of
political change is being
interpreted favourably
Jonathan Asante
THE INVESTOR CENTRE
THE INVESTOR
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A
t the outset we feel we must highlight
that we are facing a challenging
environment for returns over the next
three years.We have never believed the
solution to a debt crisis is more borrowing.
Reckless governments are now engineering
unsustainably high valuations in stock
markets, which seem divorced from the
realities and risks that businesses face
on the ground.The startling pace of
technological change, issues around obesity
and health, environmental degradation
and regulatory action to address it all pose
both grave risks and opportunities for most
companies. Our duty remains to identify
the realistically-valued and good-quality
companies that are most likely to succeed
in anticipating and responding to these in
ways which bene t shareholders over the
long term. India, if promised structural
reforms are implemented, may have the
greatest opportunity in the world for
business. Many good-quality companies
listed in India already re ect much of the
potential, but more reasonably valued
global multinationals with long-established
businesses in the country could bene t more
than currently anticipated over the medium
term. India is already a very large economy
in global terms, whatever the national
statisticians tell us, but could become much
bigger in the next decade.
FIRST STATE
Joint manager: Worldwide Managed
and Worldwide Opportunities
Good-quality companies already
reflect much of the potential
Indiamayhave the
greatest opportunity in
theworld for business
Jonathan Asante
