Emerging markets without the Indiana Jones approach

It was Phileas Fogg who circumnavigated the world in 80 days, Allan Quatermain who adventured through Africa in search of King Solomon’s mines and Indiana Jones who flew his dusty biplane over deserts hunting treasures. 

Read much fund sales literature and you might picture the successful emerging markets manager as a mix of all three – bag packed, passport in hand, ever ready to dive into the depths of nowhere looking for investment bargains and opportunities, braving danger to bring you bargains.  

Maybe that was necessary once. Years ago, one of my former colleagues who covered Sub-Saharan Africa would be met at the airport in Ghana by a motorcyclist who would race him from business to business to get data directly. Today all the data I need from companies of any standing is online. There are around 3,000 companies in the emerging market universe with substantial data¹. That’s a big enough pool for my liking.  

Some might argue that face-to-face meetings give you an edge. But I don’t think I’d gain anything from looking managers in the eye, trying to intuit deeper insights. I’m no more a mind-reading Derren Brown than I am Indiana Jones. I don’t believe spending time with a company and its management team would help me spot hidden fraud or opportunities underplayed by the data.  

Some rival funds boast of their team of specialist global analysts on the ground. It sounds good, but someone still has to assess the worth of each analyst’s judgement in building a portfolio, recognising which are cautious, which might be overenthusiastic.  

The problem is people. And that includes me. Human instincts are consistently unreliable.

The Artemis SmartGARP investment process tries to address this. Our proprietary system sifts through data from a range of sources – company data, news service feeds, analyst forecasts, market trends and so on. It kicks out a shortlist of attractively valued companies with good growth and quality features as potential ingredients within a diverse and balanced portfolio. Each has an accompanying score and we trust it. 

There’s a lot of data out there. I like to think that this model helps ensure we are empowered by it, not overpowered.  

The model helps remove human behavioural biases and emotion from our buying decisions. Just as importantly, it tells us when to sell. Usually that’s much quicker than most managers would because we don’t get attached. We don’t worry about offending people, nor do we fondly remember the great night we had with those company bosses at that restaurant in South Korea. We are less emotionally attached to companies.  

That leaves us more focused on the financial characteristics that are most significant. We focus on data. Not peripherals. It helps us flag up which regions offer the best value and ultimately shapes the country weightings in our portfolios, too.  

Perhaps the best way of underlining all this is with a story of a journey I have made recently. We’ve been renovating our family home and a friend who is an interior designer mentioned how much cheaper it would be to buy materials and furnishings in China.  

So my wife and I went out to China with her and did just that. It was incredible. We have shipped back sofas, a new kitchen, bathroom fittings and wardrobes… all sorts! The key here is that these were high-end goods – on a par with what you’d see carrying eyewatering price tags in those “I saw you coming” shops in Kensington. The same quality; massively cheaper.   

This experienced reinforced what the data has been telling me for some time now. China’s manufacturing capabilities are growing exponentially. It’s not just electric cars and solar panels. The market is huge; wages are relatively low; and there’s enormous energy and talent in the place. It’s a competitive powerhouse deserving of a big place in any portfolio. Consequently, China now represents 21% of our emerging markets fund and has a larger share of our global funds than is typical elsewhere². 

I needed to go to China to choose a sofa. I didn’t need to go there to form a view about the share prices of shipping business Cosco, electric vehicle manufacturer Geely or logistics business YTO Express. 

I enjoyed my China trip. But I’m happy to get back to my computer screen for the day job. Experience tells me it’s there that I’ll find the information I need.