It is a widely held belief that investing globally can generate portfolio benefits, from accessing markets with higher growth prospects and different economic drivers, to mitigating volatility through lower correlation among countries and sectors. But, since many businesses are increasingly earning profits from outside their borders, investors must look beyond a company’s domicile or exchange listing in order to capture the intended benefits of global exposure.
For instance, developed market multinationals, such as MasterCard (U.S.) and Unilever (Netherlands), are increasingly more diversified by geography. And, even companies locally-domiciled in emerging markets can generate a significant portion of their sales from developed nations, such as Korea’s Samsung Electronics, which earned 53% of its sales from America and Europe in 2016. Interestingly, with a 4.27% weighting, Samsung is the largest holding in the MSCI EM Index.1
Finding Opportunities in any Economic Environment
Our investment decisions are not guided by big-picture country calls or macroeconomic or political conditions. Since the companies we invest in are generally less cyclical than the market, we do not look for GDP growth as a primary earnings driver. Rather, as bottom-up investors, we seek to identify powerful and understandable franchises that are well positioned to provide stable and sustainable earnings growth from structural demand. In short, companies that can perform well during any environment.
"The world is changing. Where a company is headquartered is increasingly overshadowed by where it earns its profits and charts its future. We believe the distinction between 'domestic' and 'foreign' markets is growing stale."
Let’s consider Brazil’s Cielo as a case in point. Cielo is Brazil’s leading provider of payment card services. The company also manages the network for the acceptance of multi-brand credit and debit cards in Brazil, as well as for the processing and settlement of credit and debit card transactions. We believe the market opportunity for the penetration of cards in Brazil is large and will continue to expand. However, in recent years, Brazil has been plagued by political turmoil and a deteriorating economy, leading many investors to abandon their holdings in the country. We looked beyond the headlines and maintained our investments in companies like Cielo, which continued to innovate and invest in its brand, resulting in earnings growth despite a difficult operating environment. Over the 3 year period, Cielo generated 12.34% earnings per share growth (as of 2016 FE) per annum, in-line with our earnings growth expectations for the company.3
We believe Vontobel Asset Management’s Quality Growth Boutique, with USD 33.2 billion in assets4, is a leader in identifying profitable companies, regardless of where they are domiciled.
We believe the best way to pursue long-term growth is to seek to invest in high-quality businesses with proven records of operating profitability and favourable long-term prospects, at attractive valuations. Our portfolios are composed with little regard to traditional benchmarks or short-term trends. Because only a few companies can actually deliver on these attractive qualities, our portfolios tend to be quite concentrated.