Global Emerging Markets have changed dramatically in the last ten years; their traditional investment case, heavily centred on physical resources and cheap labour, is no longer valid. These nations have shifted away from resource-heavy industry towards the service industry, and within the sectors themselves we have also seen significant changes.
This broader shift is reflected in the MSCI Emerging Markets Index and our portfolio focus has changed as a result. Ten years ago, almost half of the portfolio allocation was weighted toward energy and financials (mostly local banks) and less than a quarter toward consumer and IT sectors. Today, this balance has reversed and individually, both IT and consumer sector weights have doubled. Indeed, IT companies have the largest sector allocation in the portfolio.
Structural changes, demographics, greater affluence and swathes of STEM graduates have enabled emerging markets to nurture some truly world-leading IP companies which form a key part of the global economy.
These are the companies which have driven the growth and changing composition of the portfolio over the decade. We believe that we have succeeded in identifying some of the great companies helping to shape the innovative and exciting asset class we know today, and which can capitalise on some of the key trends which have emerged during the period.
Strong economic growth from China and India as well as technology-led growth in South Korea and Taiwan meant many of the decade’s best opportunities were found in Asia. We identified many successful companies that drove the advancement of digitalisation and capitalised on positive disruption of traditional industries. Their ambition helped shape the innovative and exciting asset class we know today.
On the corporate side we saw the creation of a new breed of internet-based giants and the rise of emerging market technology companies to become global leaders. There has also been an increased focus on responsible investing with asset owners, investors and corporate management teams all working to improve outcomes across a range of ESG topics.
The strategy has participated in these exciting developments through the consistent application of our investment philosophy, with the importance of digitalisation and the continued rise of China proving to be recurring features in our stock picking.
In this article we follow the journey we have shared with our investors, discussing some of our key experiences and observations over the years, including:
- Digital disruption and the future of financials
- Capitalising on a long-term view
- Our changing approach to engagement
- Emergence of world-leading IP
- Looking forward
Because of our long-term approach and our consistent willingness to engage, we have been able to go deeper with our engagements over the years.