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Pakistan is a very exciting market. It’s dusty and busy, but full of growth. Last year, the market saw a large correction due to political and fiscal troubles, however most of those causes have now dissipated, leading the market to a 10% rebound since December 19. Last month, we visited several of our existing investments in Karachi and Lahore and met a few potential investments. The most interesting one was a tractor company that had just doubled its sales and is on mark to grow more. The country’s farmers have been in a favorable position with a growing economy and growing outputs. Sales have also been supported by the $55 billion China Pakistan Economic Corridor project.

We continue to see many great investment opportunities in Turkey as well. In addition to our usual trip to Istanbul, we went to Turkey’s third largest city 300 km away to meet with a couple of companies that looked interesting. One of them, which infrequently meets with investors, is an auto parts manufacturer that specializes in only a single product: axle housings. As a result, they have been able to produce very impressive returns on capital. As an exporter, they benefit from weakness in the currency. In addition to a strong balance sheet, the stock offers a very attractive earnings yield, on which it pays a healthy dividend.

All in all, we started the new year with a strong, inexpensive portfolio that seemed to be benefiting from strong global growth.


We rarely attend conferences. These events represent easy access to companies that are often larger, more expensive, and promotional. We have found that the best method for finding gems and for understanding a company’s true context is to go on-site. Each year in February, however, we walk a few hundred meters and attend a conference in Dubai where many less visible companies come. This year, we met with some of our existing holdings and with some interesting new companies.

Our conversations strengthened the sense that our Pakistan holdings now represent incredible value after last year’s market correction. One of these cases was an insurance business which has a leading market share and produces steady cash flows. If one subtracts the cash available for distribution to shareholders, the business currently yields after-tax operating profits of well over 30%. What’s more, their investment portfolio is currently 2x the solvency requirement; by subtracting the excess, we are essentially getting the business for free. Finally, the life insurance business they have been growing for nearly a decade will begin positively contributing to profits in the next year and a half. These are the kinds of companies we love to own.


March brought us back to Turkey, an unloved market by many investors but a country where we continue to see tremendous value. One company that caught our attention was a small wool textile products manufacturer which has underperformed for several years. Recently, the board decided to take action and replaced management, which is both a positive catalyst and an indication of good corporate governance. The new CEO has taken bold action in influencing the firm’s culture and rightsizing its human capital. These changes have led to the company’s highest operating margin and asset turnover in the past decade, and thus boosted its return on invested capital to around 25%, an impressive figure for a firm which manufactures unbranded products. Despite receiving a boost in its share price over the past six months, the valuation still seems to offer great value.

Another company we saw provides ground handling services to airlines in Turkey and India. In addition to generating impressive returns on invested capital in excess of 50% due to its capital-light model, the business is exposed to the airline industry which is experiencing rapid passenger growth due to the expanding middle class in these markets. In our view, valuation levels don’t reflect the superior quality and growth of this business, making it an excellent fit for our portfolio.

As always, we look forward to uncovering more fundamentally undervalued opportunities in the coming months.


In April in Vietnam, we met the chairman/CEO/co-founder of a small stainless steel products company. After some probing, we learned about an internal riff between him and his brother/co-founder that led to the brother stepping down as CEO. His answers were long and his words seemed carefully chosen. Though the change in leadership could be a positive, we tend to avoid companies with such uncertainties.

On the same trip, we met the chairman/CEO/founder of a successful Thai auto parts company. Our long meeting with him focused mostly on governance questions, as we were already familiar with the business. We learned about how he had created a successful company as an immigrant, his philosophy on governance, and his view on Thailand. He believes that alignment of interests is the most important aspect of governance and therefore runs all of his businesses through one listed entity. He also has a generous employee stock ownership incentive plan. In contrast to the meeting in Vietnam, his answers were straightforward and concise – it was our understanding that he had nothing to hide.

We focus on these types of questions because this kind of information is impossible to discover from a company’s filings, and we believe that no matter how good a business is, one must be able to trust the controlling shareholders, management, and the board, especially in developing markets. This is why we are committed to visiting companies before we invest. We seek to minimize risks and to deliver high returns to our clients.


We invest in value companies in developing economies. Over the medium to long term, the theme has been powerful. We expect it to continue to be. May, however, was very challenging with a surprise election win in Malaysia and with a market dip in Turkey, where we have our largest country weight. While the Turkey market dropped 24% in euro terms, our holdings only declined by 17%. We were protected, as half of our companies there focus on exports providing them with welcome hard currency earnings; the other half is a set of companies that seems to thrive despite market troubles. Turkey’s politics are challenging but the country still seems fertile for great individual businesses. The market now trades at a 46% discount to EM peers and offers some very interesting targets.

When facing such events, it is useful to look at a longer time period. During the life of the fund (now almost five years), Turkish equities have returned -33%. During the same period, our Turkish holdings returned 55% in euro terms. Participation, therefore, has been sensible.

We do not know where future returns will come from. But we do expect strong positive effects to come from quality companies that have been beaten down by the mass of investors in countries such as Turkey. The key is to patiently stick to a disciplined process that works over the long term.


We got off the beaten path by visiting a cement producer that operates a monopoly 1,200 km north of Mexico City. The company also holds a leading position in each of the U.S. states in which it operates. Not only do their operations in the U.S. mitigate the risk of NAFTA cancellation or a slowdown in the Mexican economy, it is nearly impossible to replicate their business due to strict regulations around building new cement plants in the U.S. Additionally, their unique network of plants and distribution centers gives them a strong competitive advantage. Getting such a business at a significant discount to peers makes it the kind we love to own.

In addition to touring the cement plant, we drove 250 km from Mexico City to meet with the CFO of a poultry company and to tour their processing facility. This company supplies a third of all the chicken in a country where per-capita chicken consumption is three-fourths of that in Brazil, providing sufficient headroom for additional growth. They are also insulated from NAFTA changes as Mexico does not export any chicken to the U.S. In fact, the company could actually benefit from such a scenario, given that more than 10% of chicken consumption in Mexico comes through imports from the U.S.

Mexico’s macro outlook appears negative as the president elected last month is expected to punish enterprise, weaken institutions, and roll back the economic reforms enacted over the past five years. While such actions create volatility in our markets, we believe our bottom-up approach pays off over the long-run.


In July, we traveled to Malaysia where we met with some of our existing holdings as well as new potential investments.

A few months ago, a new prime minister unexpectedly won the Malaysian election, changing the political party that had ruled the country for over 70 years. There is now hope for meaningful reforms as many believe that the previous administration was very corrupt. The country will, however, still need to take its “medicine” and cut spending – including on infrastructure projects deemed unnecessary by the new administration. One of our investments, which had been very successful, had been a benefactor of this excessive spending. As a result it has now lost the majority of its value. As Warren Buffett said, when the tide goes out you find out who was swimming naked. We have learned valuable lessons from this investment failure which we believe should improve our process going forward.

We also met with the CEO and chairman of one of our top holdings, a semiconductor tools servicing company that looks outstanding on nearly all of our quantitative metrics. It scores high in terms of financial strength and low in terms of probability of accounting manipulation or financial distress, its returns on invested capital have consistently increased to all-time highs, and the firm is very efficient at converting earnings to cash flows. What makes this company most exciting is that its valuation is among the lowest in our universe and that its earnings growth of the past years should continue due to strong global demand of semiconductors. We continue our search for such hidden gems.


In August, Turkish citizens cancelled their vacation plans as the lira weakened by more than 20% against the euro and tourists flooded brand-name stores in Istanbul to buy discounted luxury goods. We were in the country right as its currency crisis deepened. Many of Turkey’s largest companies lost a fifth or more of their value in a single week, despite favorable earnings announcements and unchanged fundamentals, and the stock market ended August over 50% lower in euro terms than it started in March.

We, however, optimized our Turkey positions and currently hold only seven names in Turkey. The remaining holdings either receive most of their revenues in strong currencies, or have a strong exporting franchise, or both. We sold our position in a Turkish tech distributor whose exposure to imported products like iPhones will result in significant headwinds if the FX volatility persists. We also met with a few new companies that could prove to be worthwhile future investment opportunities once the current crisis passes.

We plan to continue meeting with companies in Turkey through early September and are monitoring the country’s macroeconomic situation closely. These periods of volatility present substantial risks and opportunities for investors. We approach Turkey very carefully and continue to follow our disciplined approach as we search for the best investment opportunities. Our holdings elsewhere experienced tailwinds. For example, in Malaysia, two of our technology companies appreciated more than 40% due to continued strong earnings and increasing coverage.


Producing paper in the desert may seem amusing to a Scandinavian but, surprisingly, it makes sense. In September, we met with a Saudi producer that is able to create high-quality paperboard using recycled materials and treated wastewater. Being the only quality producer in the region also means that the firm is able to meet demand very effectively and focus on higher-margin products. The company has managed to grow despite Saudi Arabia losing nearly a million foreign workers in the last year and a half. The exodus is likely to continue as the country tries to increase the participation of Saudi nationals in its workforce, but some firms have stayed above the fray. Higher oil prices should create some lift for the economy as well.

Meanwhile, structural changes in Egypt have been paying a dividend. The consumer is still feeling some pain as inflation remains high, but unemployment has dropped by several percentage points in recent quarters. Select industrials and exporters have done extremely well. We also met with one of our holdings focused on fertilizers and utilities which has increased its earnings by nearly 70% this year. We expect its growth to continue as the company expands gas distribution and other businesses over the coming years, with a goal to double by 2020.


Pakistan and South Africa are both countries with considerable security, political, and economic concerns. We visited both in October, in part due to an increased focus on macro risk as it relates to our holdings.

Recent years have brought Pakistan relative stability, above 5% GDP growth, and the third peaceful transfer of political power. A couple of weeks ago, Pakistan was afforded a $6 billion support package from Saudi Arabia to help boost currency reserves. The government is seeking help from China and the IMF as well. While there is still work to be done on a macro level, the country holds select very interesting, cheap companies.

During a meeting with the CEO of a chemicals company that we have since invested in, we learned how the past five years of struggles forced the company to become highly cost-effective. Now, with high domestic demand and improved global pricing, it is thriving with 12% gross margins. The company also pays a high dividend, and this practice is expected to continue.

Why do we invest in such seemingly troubled countries? Firstly, emerging and frontier countries all have problems. Secondly and more importantly, however, we expect higher returns from amazing companies in such locales. Our Pakistani holdings have produced average annualized returns of nearly 18%. While history does not guarantee future performance, we expect our strategy to continue to perform well.


November was a busy month for us as we visited over 50 companies in 7 countries. We find that the more companies we see and the more economies we learn about, the more we can draw on our experience and make valuable comparisons. As Warren Buffett says, knowledge compounds like interest.

Of all these companies, one of the most interesting is a rubber manufacturer in Vietnam which owns real estate worth several times the market value of the company’s stock. While this is rare, what’s more exciting is that management has a plan to unlock the value and continue the profitable operations. They are currently negotiating an agreement with an industrial real estate developer, which will see the company sell a portion of unnecessary land for a sum of cash worth about a third of the market value of its stock and be entitled to a significant portion of the profits of the project that should generate an incredible amount of value.

On the same trip, we also met with the Chief Investment Officer of a residential real estate developer in Ho Chi Minh City, of which we are shareholders. Not only does this company have a large landbank and a great track record of buying land on the outskirts of town and developing it ten years later as the city continues to grow due to the country’s high rate of urbanization, it also uses an innovative way of financing the development without debt. Additionally, the company has one of the best corporate governance practices in the country.

We look forward to finishing off the year with visits to two more countries in December.


We rounded out the year with company meetings in the UAE and Saudi Arabia, bringing our annual total to over 150 meetings across 19 trips. One of these last meetings was with a vertically integrated containerboard producer in which we own shares. This was a great opportunity to better understand the company’s risk exposures and sustainability policies, and to tour the impressive manufacturing plant to see the process for ourselves.

We appreciate transparency, and there are various ways we measure it. One is the degree of openness and objectivity managers exhibit in our meetings. Managers unwilling to openly talk about what’s keeping them up at night is a major red flag to us. Our meetings in the UAE provided a sharp contrast between two types of managers. We met with a senior executive of an airline who claimed to be unaware of a recent article describing their pilot performing a takeoff in the wrong direction. He was also unable to provide any additional color on an accounting fraud scandal by a private equity fund in which they have invested (which also led to the resignation of the fund manager who was on the airline’s board of directors). In contrast, that same day we met with an executive of one of the largest property developers in Dubai who spoke very candidly about the challenges Dubai is facing. We did not invest in either company but came out with an obvious greater appreciation for the latter.

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