The Ashmore Advantage
PAN-Tribal recently had the pleasure of hosting Ashmore’s Edward Evans, Portfolio Manager of the Ashmore Emerging Markets Equity Fund. It was great to return to live events and to have the opportunity to introduce our newest product to advisers. We’d like to share some insights from those lunches with you.
Emerging markets (EM) have complicated governance structures, evolving macroeconomics and immature institutions, which leads them to be dynamic, complex and their stocks volatile. This is good news because it creates significant market inefficiency and the potential for meaningful alpha generation. The important skill is being able to discern between the good companies – those that can sustain strongly positive returns – and the rest.
To achieve this, a manager must have a consistent singular focus on identifying certain attributes within investments. They must then have a rigorous process in order to systemise their approach and assess the risk-reward of an investment. In Ashmore’s case, there is an emphasis on:
- High quality companies: ‘best of breed’ companies that have sustainable competitive advantages and can navigate economic and market drawdowns.
- Sustainable growth: growth is most attractive when combined with quality as this enables a
virtuous cycle whereby free cash flow can be reinvested at high rates of return.
- Attractive valuation: systematically assessing the risk/reward opportunity with position sizing changing to reflect upside creates high competition for capital in the portfolio and drives sustainably strong alpha generation.
Ashmore’s approach can be summarised as follows:
- The collective wisdom of the team and significant fundamental qualitative research, complemented by quantitative screens, help the team to filter the investible universe (the world’s most complex universe!) to a focus list of around 250 companies. This comprises a rich vein of companies that marry the best of high quality and sustainable growth attributes.
- When a stock from this list is elevated for a full-blown investment thesis, one of the team will lead on its analysis and become a true expert on this company; this includes the company’s broader industry, its suppliers, competitive threats and market opportunities. The analyst will present to the team their investment recommendation in the form of a standardised investment thesis template. This is a rigorous and iterative process that enables the team as a collective to build high conviction in a stock, underpinning their investment. This means the team can take advantage of market volatility when it arises, which may mean buying into weakness when others in the market are selling.
- Stock score-card – the disciplined and systematic framework for research concludes with a stock scorecard and a Stock Rating. This enables the team to evaluate all desired attributes for an investment in a consistent manner across all existing and prospective investments.
Each stock is scored on a series of what they consider to be key fundamental drivers, across quality, growth and valuation factors. The combination of these scores, weighted by quality then growth then valuation, determines an overall Stock Rating. This ranges from ‘Sell’, ‘Buy’, ‘Strong Buy’ and ‘Highest conviction’. In turn, the Stock Rating guides portfolio construction and position sizing by indicating an absolute portfolio weight in the portfolio…see the following example:
The ‘special sauce’ that makes this bottom-up orientated process transcend others includes the ‘Ashmore advantage’. That is a skillset and awareness of identifying macroeconomic or ‘top down’ elements that could risk overwhelming a stock’s fundamental drivers. This is facilitated by several structures at Ashmore.
- There is a weekly macro investment committee meeting, chaired by Ashmore’s CIO, with inputs from senior investment professionals and heads of offices worldwide. This provides a summation of key insights from around the world from a range of different vantage points (equity, debt, FX, etc). The meeting does not create a ‘house view’, rather it provides a rolling flow of intelligence that each team can leverage at their discussion relevant to their strategy approach.
- In London, the investment managers across equity, macro research, debt and currency sit shoulder to shoulder, facilitating more informal intelligence sharing.
- Ashmore is committed to a collaborative research mindset whereby equity professionals can attend other equity approach strategy meetings if they wish to contribute or benefit more from the discussion. All research at Ashmore, both macro and stock, is available on their Shared Research framework, a live Bloomberg portal.
- Given Ashmore’s pure focus on EM investing, the company only attracts investors who buy into the long-term compelling outlook for EM and have an asset owning mindset. Employees have a capped base salary, with the remainder paid in Ashmore Group stock that they own after a five-year vesting period. This aligns interests across the company and underpins the collaborative, open architecture research approach.
If you’d like to know more about the Ashmore Emerging Markets Equity Fund please contact your Key Account Manager:
Mark Aufderheide (NSW)
E: mark.aufderheide@pantribal.com.au
M: 0408 847 211
Nick Baring (VIC/TAS)
E: nick.baring@pantribal.com.au
M: 0457 520 297
Dane Cuthbert (NSW/ACT)
E: dane.cuthbert@pantribal.com.au
M: 0448 534 418
Matthew Mantle (QLD)
E: matthew.mantle@pantribal com.au
M: 0408 451 549
David Myers (VIC/SA/WA)
E: david.myers@pantribal com.au
M: 0413 051 376