- First State
Alan Nesbit joined First State Investments in June 2000 as Senior Portfolio Manager in the Global Emerging Markets team, specialising in Latin American equity markets. Alan became deputy head of the team in 2002 and supports the two Co-Managers on all Global Emerging Market products. Before joining First State, Alan was a Director of Deutsche Asset Management where he headed a team of Latin American equity investors within the Emerging Market group. He has specialised in Latin American markets since 1990 and, prior to that, was a senior member of the US equity team. Alan has over 40 years of experience in the funds management industry.
Our investment philosophy is based on making good absolute returns for our clients over the long-term and, of equal importance, preserving their capital. We are not driven by indices and relative judgements. We seek to identify businesses which have good long-term potential, by looking first at their track records. In particular, we focus on the track record of management and the culture of companies. We believe that in addition to track record, in areas such as Corporate Governance, Sustainability and Environment we can identify corporate attitudes to risk and with open cultures. As our knowledge and confidence in management grows we can become more comfortable making significant investments and not becoming distracted by short-term issues. Typically, our philosophy leads us more to domestic consumer related, often strong brand, companies where we can identify high quality companies which benefit from growth driven by increasing disposable income and favourable demographic trends. We like cash generative businesses and we look carefully at how management use their cash flow to create value for shareholders. We typically have much less exposure to Oil and Gas companies and Resource companies because, in Emerging Markets, these areas are mostly politically driven.
Our investment process is based on our own proprietary research which involves an intensive company visiting programme. We are a team of analysts and we all contribute research which will identify companies which we believe have good cultures in addition to good growth prospects. Our own team culture rewards those who challenge the ideas of the more experienced team members. The heart of the process is a lively and passionate argument from all team members about ideas submitted. The final investment decision is made by a fund manager. We do not expect to reach a consensus.
This philosophy has been followed consistently by the team for over 20 years. It does not always produce good relative returns in short-term periods, but it has produced good protection in market falls and very good absolute and relative returns over the longer-term.
In the short-term we are concerned about the level of valuation we are now seeing in most emerging markets and in our favoured consumer sectors especially. There are no specific countries or sectors that offer good value although there are exceptions where we can still find good quality at reasonable value. This does not mean that there are no longer any good investments in Emerging Markets. The best are just too expensive, in our opinion. As markets correct, we are hopeful that we will be able to find better valuations in businesses that we know well. We believe that the most dynamic companies in the world are those that benefit from exposure to consumption growth in Emerging Markets. Our universe includes any company which derives more than 50% of its business in Emerging Markets, and it is clear that many companies listed in more conventional markets offer much better value with increasing exposure to Emerging Markets.
Consideration needs to be given to an increasing blurring of the definition of Emerging Markets. Many successful companies from emerging markets are becoming global leading businesses, and this trend will continue. At the same time, companies from outside of emerging markets are rapidly growing the businesses in them. A good Emerging Market manager has to consider these changing dynamics.
I became very interested in business and wanted to understand what makes a good company. I also enjoy meeting people and asking questions. I did not train to become an analyst, but began as an assistant to a fund manager and then a fund manager (of USA equities) for many years. It is very hard to have more knowledge than anyone else in the USA stock market. It is a very efficient market. So, I decided to specialise in Emerging Markets where research might be more rewarding (and the travelling more interesting!)
We define risk as the risk of losing money. When valuations seem to be unforgiving, there is clearly risk of losing money in the near-term. Longer-term, if we select good quality businesses, these companies will grow into their ratings and should provide positive absolute returns.
In our investment process we debate many risks at the stock discussion stage, some specific macro concerns or industry specific concerns. Perhaps our biggest concern, discussed across all of our investments, is the potential for higher inflation in most of the world and the impact this would have on our investments, including the potential for higher interest rates.
Our team culture, and the one which I most strongly believe in, is our duty as custodian of our clients’ money. We invest clients’ money as if it were our own. We have a lot of our longer-term incentive reward locked into the funds that we run for our clients, so we have a very important alliance with our clients.
What I wish to achieve is to continue to seek out interesting new investment opportunities and also to nurture our strong team culture and pass my experience to the newer team members.
I would never invest client’s money in a business where I did not have true belief in management, at any price.
Our objective is both to make money for our clients and, equally, to preserve their capital. Our investment process is designed to identify inherently less risky companies and to be disciplined about valuation. Our performance characteristics, going back over 20 years or more, clearly shows that we have been able to do this by following our disciplined investment style.
In addition to conservative stock selection, we also have rules which are aimed at ensuring proper levels of diversification, spreading risk but also allowing us to have a good level of conviction.
This article originally appeared on June 24, 2013. Any views presented in this article are as of such date and are subject to change.
This article and the information provided therein are not a recommendation to purchase or sell any security, nor are they intended to constitute the marketing of, or a solicitation for investment in, any investment product.
First State Investments is the international operation of Colonial First State Global Asset Management (‘CFSGAM’), the specialist asset management business of the Commonwealth Bank of Australia. CFSGAM has funds under management of US$159.3 billion as at 30 September 2012.
The Asia Pacific/Global Emerging Markets equities team was rebranded as First State Stewart in early 2012. This autonomous team within First State Investments has been managing Asia Pacific (ex-Japan) equities and Global Emerging Markets equities since 1988 and 1992, respectively. The First State Stewart team is one of the most experienced and stable fund management teams in the industry and includes individuals based in Asia and the UK. The team has funds under management of US$49.6 billion as at 30 September 2012, managing investments on behalf of institutional investors and pension funds, wholesale distributors and platforms, financial advisers and their clients.?
The sub-brand of First State Stewart reflects the team’s heritage as the people, processes and investment style became part of First State Investments following the acquisition of Stewart Ivory in 2000. The 29-strong investment team based in Edinburgh, Hong Kong and Singapore employs a unique, bottom-up investment approach aimed at maximising long-term returns through the selection of well-run, quality companies.?
The First State Stewart team developed its equity investment expertise initially with a focus on the Asia Pacific region and Global Emerging Markets, but has since added a variety of allied specialist strategies such as China Equity, Sustainable Investment and most recently, Worldwide Equities. The investment style of First State Stewart is inherently conservative, with a focus on capital preservation as well as long-term capital growth. The team’s investment process adopts an absolute return mindset to avoid being carried away by indiscriminate euphoria. By focusing on the potential downside as well as on the upside when making any investment decision, the risk to long-term client returns is significantly reduced.
The team aims to invest in quality companies with strong fundamentals using a disciplined proprietary research methodology. The objective of the team’s research is to identify sensibly priced, highly quality companies that can deliver sustainable long-term earnings per share growth. First State Stewart believes selecting companies that display these features is the most important factor in producing consistent, above-average long-term performance with relatively low risk.?
December 14, 2012
by Investment in Japan