From a style point of view, we think of ourselves as growth at reasonable price investors. We think you buy emerging markets for growth. We think you buy equity for growth, but we’re also very aware of the importance of valuation in driving forward returns.
One of our other core values is the importance of liquidity. We’re not looking to trade on a high frequency in this portfolio. We’re relatively long-term investors. We hold a stock, typically, for two to three years. But in the emerging markets, it’s crucial to be able to move in and out of investments when the time is right, and the opportunities are appearing or disappearing.
There’s two things we need to do to achieve that. One is to right-size the product, to make sure we don’t run too much money. There are emerging market strategies out there that are $10, $20, $30, $50 billion. We have no interest in running something of that size because it would constrain our ability to act in our clients’ interests.
It also gives us a preference, generally, for the larger and more liquid companies in any index. So, we do tend to own larger companies, but that’s because of a focus on liquidity, rather than the view of size-driving returns.
So, we’re looking for sustained outperformance of the emerging market index, but that to be measured over a period of, perhaps, three to five years. The volatility in the asset class and the highly differentiated nature of our portfolio means that at any given month or quarter could be up or down, relative to the index. But over longer periods, to steadily and sustainably outperform the index.
It’s important to have a medium-term view. I think long-term is a dangerous approach. Our view is that emerging markets as an asset class are characterised by booms and busts, and that the key risks and opportunities sit around those. There are long-term winners, but a portfolio that is positioned only for the very long term is one that is at risk of being on the wrong side of some of those, particularly the busts.
And so, we’re focused at any one time of looking at what’s happening in the market, in the economics, and in the politics, but with a two-to-three-year view. We think that’s about the optimal investment horizon. So, yes, long-term in that sense, but not strategically long-term of deciding that Country X is a winner for the next decade.