This article was written by Ganesh Rao and originally published on CNBC. The article can be found on their website here.
The global emerging markets portfolio managed by Aubrey Capital has achieved impressive returns over the past decade. The key to its success? A laser focus on consumers. “We look at just one thing in emerging markets, only one thing, and that’s the consumer,” Mark Martyrossian, a Director and Head of Distribution at Aubrey Capital, told CNBC Pro. This approach has helped the Aubrey Global Emerging Markets Strategy to post returns of 14.2% over the past year, nearly double the MSCI Emerging Market Index‘s 8.2% gain. Over the past 5 years, the Strategy is up 39.4%, compared to the benchmark’s 11.6%, and over the past decade it’s up 95.4%, compared to the 33.8% return posted by the MSCI index. *Performance figures are presented net of fees in USD as of 31 March 2024.
Aubrey’s Global Emerging Markets Strategy oversees nearly $600 million of assets. To be considered for Aubrey’s portfolio, a company must derive the majority of its revenue or profit directly from consumers. Out of about 2,000 consumer-facing companies in the emerging markets universe, Aubrey is only invested in about 35.
What does the Strategy avoid? Despite being what’s known as a “bottom-up investor” — analyzing the fundamentals of any given stock before making a bet – Aubrey also pays attention to the macro environment, avoiding countries like Turkey and South Africa where economic troubles may dampen consumer spending, according to Martyrossian. Turkey’s economy has struggled over the past few years as annual inflation has risen to nearly 70% . In response, the country’s central bank raised interest rates to 50% this year. Rising interest rates typically squeeze consumers’ finances in an effort to tame inflation. “The consumer is just not going to spend that extra buck in the country where the economy is troubled,” said Martyrossian, who previously worked in Hong Kong and was focused on China equities for several years.
The Strategy’s focus on the consumer in emerging markets also means it has missed out on the biggest market trend of the past 18 months: artificial intelligence. Aubrey’s fund does not hold an investment in the AI chip maker Taiwan’s TSMC, for example, despite its near 60% rally over the past year. “TSMC is a world-class, fantastic company,” acknowledged Martyrossian. “But it’s running foundries for the production of chips. That’s a B2B business. It’s not a B2C business.”
Where is Aubrey investing? Nearly half the Aubrey Global Emerging Markets Opportunities Fund is invested in India. Martyrossian says future earnings potential justifies current valuations despite the Indian stock market hitting an all-time high multiple times this year. “So what we see at the moment in India is stocks have done well but the market is not looking ahead,” said Martyrossian. “What we’re seeing is a stream of earnings and profitability coming down the line, which makes today’s [share] price not pricey at all.”
One of the top holdings is Varun Beverages , one of the largest bottling companies for PepsiCo’s beverages outside the United States. The stock has risen by more than 1,000% over the past five years. Even after trimming its position to stay within the strategy’s risk parameters, Varun remains one of Aubrey’s largest positions. VBL-IN 5Y line “For a lot of people in this world, being wealthy enough to have a soft drink is a fulfilment of an ambition and an aspiration. And that’s why soft drinks are a theme for us,” he said.
Varun is not the only beverage and fast-food player in Aubrey’s portfolio. Companies operating in Mexico, such as Coca-Cola FEMSA , Arca Continental , Alesa, the Burger King franchisee, and Arcos Dorados in Brazil, are also part of the portfolio. “We like that theme … and these are businesses that are cleaning up,” he added.
Around 7% of the Strategy is invested in Indian real estate developers like Macrotech and DLF , focused on the growing urban middle class. Both companies build luxury residential complexes and townships around Delhi and Mumbai. Martyrossian drew parallels with China, where since 2000, the urban population has grown from 35% to 60%. Meanwhile, India’s urban population has grown by 18% since 1960 , and the trend has accelerated since the turn of the millennia. While he’s cautious that India might not follow the same trajectory, he suggests the underlying theme applies. “Playing the property sector … will be an ongoing trend, and it’s one that we keep an eagle eye out on,” he said.
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