What's your call for emerging markets For next year Oh thanks for having me and thank you Thanks again matt so 2022 is going to be An interesting year if you just look at The backdrop of what we've been through Over the past 12 months obviously it Becomes a little frustrating at times But again our firm is Solely focused on fundamentals we're Very bottoms up we focus on high quality Businesses trading at attractive prices That pay some sort of income or dividend Distribution and more importantly is we Want those characteristics to persist so When we look at the macro point of view Yes sometimes it looks a bit gloomy but We have to remember emerging markets Volatility is inherent right we have 26 Different countries When you think about last year's best Performer south korea was number one it Put up almost 40 percent Year-to-date it's almost down nine Percent right and same same goes for China and a few other countries But when we think about what could Unravel valuations are extremely Depressed uh not only on an absolute Basis but also relative across various Indicators a quick one is the schiller Price to earnings ratio which Essentially levels the playing field Between countries such as the united
States and emerging markets because it Adjusts for cyclicality and inflation And right now the discount is at All-time highs now is that the only Thing that will unlock value we Personally don't think so it's a Confluence of events and i think one Component that seems to get overlooked Is The portion of narrative economics that We've been seeing over the past 12 Months when you know we latch on to a Story uh be it for good or bad purposes And then it perpetuates itself because If you look at the underlying Fundamentals of a lot of these Businesses especially the ones that we Invest in they continue to persist they Continue to beat on earnings and have High quality type earnings and so it's Very you know healthy financial Statements so i think as a whole Diversification is key It's hard to actually tell when that Value will begin to unlock but i think Once momentum starts to carry itself and There's relative outperformance i think It will continue What is it that set i mean if i look at My comp screen on the bloomberg terminal And i put in Um you know big developed markets like The s p Versus uh ishares msci emerging markets
Etf or or the msci emerging markets etf Emerging markets did Keep up over the if i look over the last Two years into December January february march and then started To underperform what what happened what Changed So china was a component of that and Again china today drives a majority of The returns for the index when you think About what it is today it's roughly a Third but if you go back to when the Index was created back in 2001 it was Less than five percent i wouldn't call It a rounding here but it was a lot more Minimal so today a lot of what drives Returns in china will obviously create Some skew to the index That i think coupled with a few you know News sources i know that there was a Lady that just discussed vaccinations There was a lack of vaccinations across Multiple markets including india that Started to pick up i'm originally from Mexico i can tell you that it started to Pick up recently but for a while it was Pretty flatlined But again removing that removing the Noise specifically looking at the Fundamentals it's it's a little head Scratching sometimes because again There's just so much divergence between Not only the u.s and emerging markets
But emerging markets just to broad Developed indices across the globe so Luis when you and your team are looking For opportunities do you start at the Country level i want to be in brazil i Don't want to be in china i want to be In south korea or do you look for Individual Companies first So our philosophy is based on academic Research and we've looked at history and What's rewarded emerging markets Specifically Is not taking big specific or sector Country bets We focus more on the individual company Level so think about it this way we Isolate the risk to the country level so If china's 33 right now will be plus or Minus a few percentage points but it's More of a function of finding high Quality businesses that we can again put Within that bucket but for us it's not a Specific view on a country or sector Because again going back to my first Comment there's just so much inherent Volatility year to year Thinking which will be the specific Winner out of 26 countries just based on Raw statistics is very difficult right So diversifying from that point of view And then just Buying high quality businesses at Attractive prices that pay dividend will
Have a higher probability to succeed in Our in our view And that's a key part of your strategy As well right i mean not to Belabor my love of the comp screen but It shows you absolute price change and It also shows you total return and the Difference somebody on twitter yesterday Was was saying you know thanks for Including total return a lot of people Leave dividends out this is a big part Of your strategy isn't it Yes yes that's correct and if you think About the makeup of emerging markets Ironically over 85 percent of public Companies within those 26 countries pay Some sort of cash distribution In the united states it's less than half So when you have a sandbox that lends Itself to this type of Strategy at an individual company level Not only does that help Increase total return for our strategy It lowers risk and it actually lessens The probability of financial Misrepresentations Luis give us an example in third thirty Seconds of maybe a recent company you Added to your portfolio So um i can't necessarily speak to a Specific company but sectors and Countries uh there's a company within Poland it's a software as a service That's a mid cap company that's done
Quite well it's piggybacking on what We're seeing here in the united states In terms of amazon Locker delivery locations safe drop-off Locations so it's kind of a combination Of hardware and software but again Looking at their return on equity return On invested capital they're growing Leaps and bounds And again they have a high market share Within their country and nobody thinks Of a country such as poland right as an Emerging market country but again There's value Where we believe is in specific Countries like that and again we've been Very lucky to find that opportunity and Hope that will persist
