Tap into the world’s fastest-growing markets by investing into high quality companies driving sustainable growth outcomes.

 

"We believe the value vs. growth distinction is somewhat redundant. Growth is a fundamental part of the value of a business – not a separate feature."

Rasmus Nemmoe

Meet the manager

A short insight into how Rasmus Nemmoe, Portfolio Manager, thinks about life and investing.

About the strategy

A behind-the-scenes look at the investment philosophy for the Global Emerging Markets investment strategy.

How we invest

 

Diversified and differentiated

The broad Global Emerging Markets universe provides diversification, while bottom-up stock selection and high active share^ differentiates our portfolios from the benchmark index.

High conviction investments

A focused portfolio of 40 to 50 companies ensures that only the highest conviction investment ideas are included.

Integrated ESG analysis

ESG analysis, shareholder engagement and proxy voting is fully integrated into the investment process.

Investment themes

 

FSSA’s Global Emerging Markets portfolios are built company by company from the bottom up, with little regard for index positioning.  We are focused on growth in an absolute return* sense and construct portfolios of high quality companies with effective management teams, long-term, sustainable growth drivers and strong financials. With low penetration rates for goods and services, and barriers to entry which protect profits and cash flow, the leading companies in the region have a good track record of compounding earnings and creating long-term value for stakeholders.

Dominant consumer franchises

With favourable demographics and populations that are still growing – particularly in Southeast Asia and India – we believe dominant consumer franchises can offer good growth potential over the long term.

High quality financials

As income levels rise, credit penetration in emerging markets will increase. We aim to back the most efficient and risk-aware financial franchises to gain market share through the cycles.

Strong alignment, innovative culture

Decisions taken by company management in both good and bad times can significantly affect its long-term outlook. We look for strong alignment with management and a culture that embraces innovation.

Internet and technology

Rising smartphone usage, young demographics and large pools of IT talent have led to burgeoning technology markets. With an ability to reinvest at high rates, we believe leaders will continue to increase their share and generate long-term growth.

^ Active share is a measure of the percentage of stock holdings in a portfolio that differs from the benchmark
* Absolute return is the return that an asset achieves over a specified period

Case studies

 

An example of a high quality financials is ICICI Lombard, the leading private general insurer in India, which we have been shareholders of since 2020. The company has a strong track record with book value per share compounding (including dividends) at 19% annually for the past fifteen years.

There are several supportive factors for this holding. Firstly, general insurance penetration in India is one of the lowest globally. Even among emerging markets, the country’s $20 premium per capita is a fraction of peers like Mexico ($122) and Thailand ($129). The industry has attractive long-term growth potential and visibility.

Similar to the banking industry, private operators have been consistently gaining share over State-Owned Enterprises (SOEs). While the latter still control a significant part of the market (over 40% premium share), years of underinvestment and mis-management have led to stretched balance sheets, which restrict their ability to grow. We believe SOEs will continue to be market share donors in the long run, benefitting the best private insurers like ICICI Lombard.

The company demonstrates strong risk-awareness and agility. Management only operates in segments where they can generate attractive returns and we back the management to continue doing so while still growing and avoiding excessive risks.

India general insurance industry market share trend

Non-life insurance $ per capita

Source: Company reports, FSSA Investment Managers, as at 31 March 2021. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

Yum China is the leading quick-service restaurant franchise in China and operates the KFC and Pizza Hut brands. The company first commenced operations in China in 1987 as a subsidiary of Yum Brands before being spun off in 2016. Today, the company operates the largest store network in the country with over 10,000 stores in 1,200 cities.

The company’s scale, execution ability and innovation are significant sources of competitive advantage. For example, the company has a smart promotion system that regularly engages millions of their KFC and Pizza Hut loyalty scheme members, who in turn generate over 50% of sales. Yum China possesses a nationwide supply chain and logistics network, a 1000 strong team focusing solely on store expansion, and its own delivery platform and rider fleet, all of which enables it to grow while controlling costs and maintaining product quality.

The company also takes its environmental and social obligations as a quick-service restaurant seriously. For example, Yum China incorporates healthier items such as salad and congee in its menu and is an active member in the Chinese Nutrition Society. The company also aims to reduce wastage and have cut paper and plastic usage by 9,000 tons every year. They are also committed to further improving palm oil and paper sourcing. The company also values its people and provides welfare and insurance coverage not only to its front line staff but also their elderly parents.

Yum China is an example of a company that has strong alignment with the management and a culture that embraces innovation. We have been shareholders of Yum China since 2018 and we believe these investments will enable them to benefit from China’s growing domestic consumption.

KFC restaurant penetration (restaurants per m people)

High Return On Invested Capital (ROIC)

Source: Company data, Macquarie Research, Bloomberg, as at 31 March 2020. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

Founded in 2001 by a team of ex-banking and retail professionals, Capitec’s management strive to do things differently from the large incumbent banks. They have the bold vision to make banking accessible and transparent for everyone in South Africa.

With emphasis on efficiency, the company achieved the lowest cost base in the industry, which allowed them to offer more competitive rates to customers. The lower loan rate not only helped attract higher quality customers, it also inherently reduced credit risk through lower instalments.

It is common to see such practices with Capitec where both parties win. The company caps returns (ROE) at 25%, and as they have grown and gained market share they have reinvested these extra returns in new growth areas, while also passing on the cost savings to customers through lower fees and rates. This in turn attracts more customers, generating further growth and unlocking additional economies of scale which the company then reinvests. As a result, Capitec has created a virtuous cycle of growth, scale and reinvestment which has seen it boast the largest number of retail customers in the country with approximately 15m accounts.

Capitec is an example of a high quality financial and as shareholders of Capitec since 2017, we are confident in the company’s ability to grow due to a seasoned management team.

Reinvesting for growth

Lowest cost operator (cost/income ratio)

Source: Company data, Bloomberg, as at 31 March 2021. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

Insights

 

Read the latest investment insights on our strategies and ESG related investment issues from our specialist teams.