- Equity market rally and key drivers
- Central bank responses and enhanced liquidity
- The realities of investing a world in lockdown – strength of our process and teams
…our way of working is quite uncommon in the industry but it’s been a key ingredient in our success.
This is Sophie Heslop from Martin Currie with the second in our series from our Global Emerging Markets team. Today we are joined by Allister Reynolds who will discuss….on Collaboration. But before I hand over to Ally, a recap. We learnt last week that the GEMS remains true to its philosophy and process regardless of market noise. Bottom up, fundamentally driven research that has ESG embedded throughout this process, results in a balanced portfolio of quality growth companies that are held for the long term.
Q: Can you give us an update of how emerging markets have progressed in recent weeks.
Well Sophie, as improbable as it may have seemed only a few weeks ago, equity markets around the world have staged quite an impressive recovery.
The efforts of central banks to provide liquidity to the financial system has helped remove some of the panic from markets, relieving the downward pressure on asset prices and prompting a drop off in the extreme volatility of previous weeks.
Emerging markets have rallied 17% from their lows of 23 March, with broadly speaking those segments which suffered most on the way down seeing the sharpest rebound. So, we’ve seen a sharp rebound from the likes of Brazil, Russia, India and South Africa and from a sector perspective energy stocks have mirrored an underlying recovery in oil prices.
Yet that is not to suggest we’ve achieved anything like a return to normality, emerging markets are still down 20% since the start of the year and we’ve just entered a phase where the huge populations of India and Russia have joined the list of countries in lock-down. And much closer to home, Martin Currie is now in its fifth- week of working from home.
Q: How have you faced the challenges dealing with a stock market crisis whilst having to work from home.
Well first off, the wonders of cloud computing mean that we can access all our information sources and management tools wherever we work and that has served us well during this phase of physical separation.
It may be more of a surprise for listeners to hear that our investment process has been deliberately designed to allow our team to work at distance from each other. This was not part of some end-of-the-World fantasy but rather a deliberate construct to promote thoughtful collaboration in our idea generation and investment decision making.
We have worked tirelessly over the years to create an investment process that maximises the vast experience we have on our team. This has resulted in an environment in which investment questions are clearly framed and where our whole investment team reflects on each question in their own time and in their own space.
Although we’ve been working this way for years, this way of working has continued to serve us very well over the past few weeks.So, despite the markets being thrown into crisis, there’s been no sense of panic within our team.
What we have seen is many new questions raised and each of us has brought well considered responses and follow-ups. These have included checks on supply-chain sensitivity, cash flow liquidity, debt capacity and profit sensitivity. All these new questions were aimed to give us a better understanding of the investment realities of a world in lock down.
As well as the many new investment questions raised in response to Corona virus, we’ve also had to process huge volumes of new information that has followed the virus’s spread across the world. We’ve created a playbook to help manage this information flow and this is helping us gather relevant facts, consider the Knock-on-effects on different countries & industries and it is ultimately allowing us to maintain our focus on any long-term impacts this crisis will have on emerging market companies.
I guess a final challenge to mention is one that poses a potential threat to all managers: That is the risk of being wrongly positioned when a crisis hits. This can lead to being caught like a rabbit in headlights with the unenviable consequence of relying on the force of impact to decide the outcome.
Fortunately, our approach to risk management is designed to avoid this. We devote significant resource and expertise to select stocks with positive expected outcomes but, crucially, we combine them at all times into a broadly diversified fund for the precise reason that it can cushion the damage from unexpected outcomes.
Q: You make crisis management sound almost serene, surely it hasn’t all been calm. Do you think your experiences of the crisis & the way your team is approaching it are uncommon.
I wish I could say it was serene, maybe composed is about as calm as it gets. That’s the beauty of a good process though , it allows you to focus on the things that will make the biggest difference each and every day, crisis or otherwise.
However, you’re right to ask, as our way of working is quite uncommon in the industry but it’s been a key ingredient in our success.
We may take comfort in having one of the most experienced teams in the industry but our client’s only benefit from that if we can find a way to channel that experience. We do that by working together, we harness our collective knowledge and diverse thinking to make better investment decisions.
We’ve created a structure where everyone in our team is directly involved in setting the investment agenda and deciding which stocks go in or out of our fund. We have common goals and incentives to encourage collaboration and to ensure we are motivated to bring all our experience to every part of what we do.
That gives us the best chance of identifying the burning questions to ask when faced with the real world complexity of identifying mis-priced companies. It also limits the behavioural and un-necessary pressure that would exist if we relied on just one manager to reach decisions. No panic, no knee-jerk reactions, just well considered investment decisions reached in a timely manner.
Everyone has something to add and at the end of the day, during crisis or otherwise, when dealing with complexity and building durable portfolios many minds are better than one.
So, to summarise, the current Covid Crisis has not affected the way the Global Emerging Markets team, one of the most experienced in the industry, works together to build the portfolio. Whilst a collaborative approach, each member is encouraged to be independently minded and continue to analyse in depth all facets of the portfolio and bring their thoughts to the table for further debate and discussion. This creates an investment process that has stood the test of time and results in a resilient portfolio of quality growth emerging market companies.
That concludes our podcast Another member from the GEMs team will be taking the baton from Paul for our next podcast. Thank you for your time.
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