124. Using former investigative journalists to research investments

Sudarshan Murthy, deputy manager of GQG Partners Emerging Markets Equity fund, explains why the team comprises not only those with investment backgrounds but also former investigative journalists and scientists. He also gives his view on the outlook for China and Brazil, talks about technology and financials and reveals why banks – which are a value play in developed markets – are a growth story in emerging economies.

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GQG Partners is one of the newest and fastest growing asset management businesses, having only launched in 2016. GQG Partners Emerging Markets Equity is a concentrated portfolio of high quality companies with durable earnings. The emphasis is on future quality, rather than companies which have simply done well historically.

What’s covered in this podcast:

• Why GQG has a diverse research team that includes former investigative journalists and scientists [0:30]
• Why looking at US firms helps build a view on emerging markets [1:59]
• If emerging markets will have their time again [3:14]
• The outlook for China’s stock market [4:35]
• The outlook for Latin America [6:24]
• Long term structural themes in the fund [7:42]
• Why banks are a value play in developed markets but growth opportunities in emerging markets [9:03]

25 March 2020 (pre-recorded 24 March 2020)


Below is a transcript of the episode, modified for your reading pleasure. Please check the corresponding audio before quoting in print, as it may contain small errors. Please remember we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at your time of listening. For more information on the people and ideas in the episode, see the links at the bottom of the post.




Ryan Lightfoot-Brown (RLB): Hello and welcome to the Investing on the go podcast brought to you by FundCalibre. I’m Ryan Lightfoot-Brown and today I’m joined by Sudarshan Murthy, the deputy portfolio manager of the Elite Rated GQG Partners Emerging Markets Equity fund. Sudarshan, thank you very much for your time.


Sudarshan Murthy (SM): Thank you for having me.





RLB: Now the team at GQG have a long pedigree of investing in emerging markets, how do you apply the lessons that you’ve learned over the years?


SM: Sure. If you look at what we do, we invest in large and mega cap companies, that we think will do well over a five year time frame. Now typically, these companies are very well covered in terms of sell-side coverage. You might have 40-50 sell-side analysts covering these names. So no longer is information an edge, because information is actually a commodity. What’s important is insight. And the way we go about it is firstly, we have built a team that’s very diverse. I mean diverse in terms of how we approach the world, where we come from. So for example, we have four non-traditional analysts on the team who come with previously an investigative journalists background. The way they look at the world is very different from how a typical buy-side investor looks at. We have a couple of scientists on the team. So, one is having this diverse set of people.


The second is, we are bottom-up stock pickers. Any name that we analyse, will end up having multiple pairs of eyes. And that’s very helpful because the diversity of the team, each one of us tends to look at the same situation from a slightly different context. And I think getting all these views helps us generate insights. The other somewhat unique aspect of how we do investing is, it’s the same team that in this emerging market strategy, as well as the developed market strategy, and I find it very helpful, there’s a cross-pollination of ideas that happen.


But also, we benefit from it when I invest in EM names, the fact that I also look at US businesses actually helps me. And finally, to round off this question, what is it that we are trying to do? We are trying to assess the forward looking quality of a business. So, the question we try to answer is, how will this business be five years from now? Will it be in a stronger situation? If so, why? So, it’s going to be a mix of qualitative and quantitative analysis that happens.




RLB: Thank you. That actually quite neatly leads me into my next question because emerging markets did very well in the first decades of the 2000s. But struggled more in the second, with developed markets – in particular the US – very much taking the lead. Now, as we enter what has depressingly become the third decade of the 2000s, do you think that emerging markets are going to have their time again? And if so, why?


SM: I believe so. And you can see that in their actions. Like I mentioned, the same team that runs our global strategy, as well as the emerging market strategy, and what you find is the rate of EM names in our global strategy has been increasing. It shows that we are optimistic about the opportunities there.


Now, when you look back, right, in the last 10 years, the liquidity in the EM markets, the composition of the large companies in EM has improved significantly. And you’ve seen some truly innovative world-class companies coming out of EM. And what’s helped it? You know countries like China and India, large countries where you have tailwinds of continuing urbanisation, rise of middle class, just throws up a lot of opportunities. At the same time, as some of the smaller countries, Taiwan, South Korea, have turned up some really world-class companies too. As a bottom up stock picker, I do feel that the opportunity set in emerging markets is interesting for us.




RLB: And one of the big countries that makes up a large part of your benchmark is China. What’s your outlook for that stock market?


SM: Look, China’s definitely benefited from their rapid response to COVID as the first major country to emerge out of COVID. We can see that in the companies that we follow, the country is by and large recovered. So that definitely helps them. But also, China’s the second largest economy in the world – just throws up a lot of business opportunities at scale. Some of the technology companies in China, I think are as innovative as the ones in the US, if not more. And what’s helped them is the scale. Many of them have like half a billion active users. China as a country just has dramatically transformed itself over the last 10, 20 years.


Now, one, at the same time when we talk about China, we also need to be careful because US/China relationship will remain challenging because we believe that the inherant conflicts of interest within the top two economies in the world, conflicts in terms of high technology, intellectual property, and those are not going to go away. So, when we look at names in China – and China is by far the largest portion of our EM portfolio – we are very careful that these are domestic-focused names. So they’re somewhat insulated from the trade war rhetoric or US general relationship to a certain extent.




RLB: That’s good to know. I think perhaps the other end of the scale in terms of EM countries, the Latin America region has struggled and has done for some time. What’s your outlook for the region? Do you think it can see some level of recovery anytime soon?


SM: Brazil is the biggest market out there and Brazil still has a lot of challenges dealing with COVID. But if you stand back to 2019, people were, market participants were very excited about Brazil because they thought reforms will continue, will accelerate. And that really hasn’t happened. So we don’t see too many opportunities coming out of LatAm. That said there are a few selective businesses that are exciting. Some commodity companies are interesting in that region. Banks could be interesting too. But by and large, when we are seeing more opportunities coming from the other parts of the portfolio, predominantly Asia-focused. China, India these two countries are pretty much recovered from COVID and there differently opportunities that are interesting there. And beyond those, the other countries that I shared where we do see opportunities.




RLB: Okay. So maybe within those regions what sort of sectors are you looking for? Are there any long term structural themes in the portfolio?


SM: Yeah, look we are bottom up stock pickers, we approach the world stock by stock. But then, when you aggregate and look at the portfolio, technology and financials are our top two weighted. In financials, banks in Asia, in EM Asia, they tend to be structural growers. You can take a 10 year view, 20 year view of these banks, because they’re not cyclical business. There’s a long growth opportunity in countries like India, Indonesia, for the banking system. So that’s one.


The second aspect is technology. If you look at the portfolio, we own some really high quality businesses, very innovative with deep moats, where we feel that over the next five years, these businesses will have a strong, sustainable earnings growth. And they also benefit from the emerging things like 5G, internet of things, semiconductors and so on.




RLB: And just getting back to the financials point, we… in the sort of developed market, equities and stock markets, financials are treated as more of a value stock, it’s okay because it’s cheap, you think it’s more of a growth stock? Can you just explain to us why that is different in emerging markets?


SM: Sure, countries like India and Indonesia are vastly under banked. So the growth trajectory for them is still very, very large. So, I can look at some of these banks, to the Indian banks, and anticipate they should be able to grow at mid to high teens for the next decade. So, because you have that growth trajectory that makes them secular growers.


RLB: Okay, well Sudarshan that’s been really interesting. So, thank you very much for your time today.


SM: Thank you for having me.


RLB: And if you’d like to find out more information on the GQG Partners Emerging Markets Equity fund, please visit the website: fundcalibre.com and for more from the Investing on the go podcast, please don’t forget to subscribe via your normal channels.

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