We spent an entire month in Saudi Arabia, meeting with the CEOs and senior management of 75 listed companies in Riyadh, Jeddah, and Dammam. We also met with the president of the stock exchange, chairman of the securities regulator, and central bank executives.

During this month-long stay, we found ourselves right in the middle of the sweeping changes as the country is opening up: tourist visas have recently been introduced, women can now drive, single people can visit shopping malls, and cinemas started operating. Finding movie tickets is a problem though as they get sold out rapidly. A shopping mall operator we found strongly benefits from these changes. Their malls have seen increased foot traffic in the last few quarters, and earnings have been growing. Furthermore, they plan to open 18 cinemas in the next 1.5 years. Their chairman and CEO, according to several sources, are known as strong executors. Additionally, a car rental company already in our portfolio continues to benefit from increasing numbers of female drivers as well as tourists.

We also met the CEO of a small auto and health insurance company which rarely meets investors, but only met us given our persistence and the novelty of our fund’s Finnish base. This company has grown earnings by almost 30% a year for the past five years despite operating in an environment where most competitors have been losing money. However, despite their strong track record, they gave us a balanced perspective on their business with weaknesses and key risks clearly articulated, something that very few managers do. Additionally, while most companies prefer meetings later in the morning, this CEO proposed a 7:30am meeting – perhaps a sign of their work ethic and focus on the business.


We spent an entire month in South Africa, meeting with 90 listed companies in Johannesburg and Cape Town (including 67 CEO meetings). To better understand the macro risks of investing in a country with unemployment of 30% and a GDP per capita that has not grown over the past decade, we met with the central bank governor, finance ministry, securities regulator, commissioner for black economic empowerment, leading finance and economics professors, local fund managers, and financial reporters. The prevailing sentiment on the ground was depressing, but we were able to find three companies that appeared capable of withstanding the macro challenges.


One company, a self-storage asset owner and operator, has been able to acquire properties and grow the number of stores consistently over the last several years. Driven by a young focused hands-on founder CEO, the firm offers an 8% dividend yield and operates in a nascent industry with a defensive business model which should continue growing despite likely further domestic economic issues as the business thrives when people change jobs and homes. Its partial exposure outside of South Africa provides additional hedge. Another company, a hospital and diagnostic healthcare services provider which is expanding its radiology facilities, has been steadily growing its top line, EBITDA and cash flows for years. A third company we met which thrives in tough economic circumstances is a company that finances, repossesses, refurbishes and resells informal microbuses we saw all over the streets of Johannesburg. This company wins when clients pay on time and is protected when they don’t.


We spent an entire month in Turkey, meeting with 35 listed companies in Istanbul. We were on track to meet over 120; however, due to the spread of coronavirus most of our meetings were canceled. The companies we met expressed a great deal of uncertainty about the impact of COVID-19 disruption on their operations.

One company we met, a discount grocery store business that operates nearly 8,000 small supermarkets, is positioned defensively to withstand the pandemic impact relatively unscathed. Their hard-discount business model of carrying a limited number of items at the lowest prices possible in neighborhood locations reachable by foot guarantees consistent consumer traffic, as even during shutdowns the demand for necessities such as water, food, and toilet paper is stable. The company boasts the lowest cost structure in the industry, and their efficient logistics network ensures prompt restocking.

This month our portfolio lost 25% of its value, more than the closest index which lost 24% and the broader emerging markets index which lost 15%. This is largely due to our strategy of investing in “hidden gems” which are typically smaller and less liquid companies whose stock prices often deviate the most from intrinsic value during panic selling. Additionally, China’s 37% weight helped the EM index as the Chinese market was resilient this month.

We continue to see great value in our portfolio with an average P/E of 5x on EPS which grew 4% last year (compared to the EM index’s 12x and -12% respectively). While our companies will feel the impact of the pandemic, they are well-positioned to navigate the crisis given their high quality: not only is their average ROE 21% (while EM’s is 11%), nearly 40% of them are sitting on net cash, and their average net debt to EBITDA is only 0.5x (compared to 2.0x for EM).


We spent most of the month in Istanbul as Turkey's reported coronavirus cases exploded from 0 to 100,000. We observed first-hand the mismanagement of the crisis and suppression of inconvenient truths by the Turkish government which led to a spike in the number of cases and local currency devaluing by 15%. We are cautious about our exposure to this volatile market.

The fund returned 17% in April (while the closest index was up 8%), the largest one-month relative and absolute gain in the fund’s life due to the high-quality nature of our portfolio which we explained in last month’s report. The largest contributor was a Malaysian glove manufacturer we added to the portfolio in mid-March to take advantage of the anticipated increase in demand not reflected in the stock price at that point. We also benefited from reversals in oversold positions – some of which we opportunistically increased following excessive stock price declines – including a high-growth Indonesian lifestyle retailer exclusively operating brands such as Nike, Zara, and Starbucks which is now trading at a fraction of the multiple it has traded at for over a decade.

To better understand the impact of the pandemic on our portfolio holdings and the other companies we met over the past 10 months, we reached out to all 632 companies by email. While most have been negatively affected, some have benefited, including rubber glove manufacturers, mobile operators, media broadcasters, essential food producers and retailers, brokerage firms, and call centers. We also learned that despite many firms laying off employees, a Malaysian automation equipment manufacturer in our portfolio is seizing the opportunity by hiring engineering talent, thus enhancing their R&D and removing their biggest obstacle to growth.


The fund returned 10% in May and is up 39% since the bottom of the crisis in March (while the closest index was up 1% in May and 21% from the bottom), the second month in a row in which the fund’s return was the highest of nearly 800 listed emerging market funds globally.

Of 632 companies we met in the past year, the four medical glove manufacturers in Malaysia (where 65% of the world’s supply is produced) stood to benefit most from the COVID-19 pandemic as the demand for personal protective gear and hospital supplies has skyrocketed. Of these four, one – which had just recently announced a land acquisition to expand capacity – was trading at 22x LTM EPS while competitors traded at 53x, 43x, and 28x. Its stock price was shockingly flat since the beginning of the crisis and we were surprised that almost no sell-side research had recognized the opportunity. Since we acquired this position at the end of March, the stock has increased by 400%, requiring us to trim our position twice.

In addition to finding compelling investment opportunities through a bottom-up approach, we have also spent a lot of time analyzing the impact of the crisis on the countries in which we invest. We compiled our research on the number of coronavirus cases and measures taken by the governments, how much GDP growth estimates have been revised, the amount of monetary and fiscal policy stimulus announced and how much room exists for further stimulus, the adequacy of the countries’ reserves and overall financial strength, and reliance on remittances, commodities, and tourism. We have reduced our exposure to the countries in which we see the greatest risks and have benefited from 40% of our portfolio being invested in four countries which have been more resilient (averaging only -11% since the crisis started, compared to the average EM country which has lost -24%).


As we wrote in April, to learn how companies in our universe were affected by the coronavirus we sent out 13 pandemic-related questions to all 632 companies we met over the past year. In June, we followed up with the 488 companies which responded, asking four additional questions: how much have revenues declined in April and May, when does the company expect to return to pre-crisis revenues, whether they implemented coronavirus-related measures earlier than their countries’ governments did, and if there are any updates to the answers they provided in April. While the responses painted somewhat of a grim picture (most firms saw revenues drop significantly and are uncertain about expectations for a recovery), we were encouraged that little had changed from their answers in April, and we were impressed that most firms proactively took action before government measures came into place. Most of all, we were excited to dig into the 39 firms which actually saw revenues increase in April and May, as well as the seven firms which expected a full recovery in the second quarter.

One of these firms, a freight transportation company which owns 33 tankers in Indonesia, is benefiting strongly from the pandemic and expects 2020 earnings to increase 300-400%. Oil consumption dropped sharply in H1 2020 while supply was still increasing – together with a shortage of tankers in the market this resulted in insufficient oil storage space, and the rates for tankers used as floating storage increased multiple times. In 2019, the company diversified its client base from 20% to 35% international clients (which pay 50% higher rates than the state-owned Indonesian oil corporation) and acquired 8 additional vessels. They also purchased another 5 vessels in Q1 2020 (which will contribute fully to Q2 results) and 3 vessels in Q2. Altogether, with higher rates and 142% greater effective tonnage, this marine operator whose LTM P/E stands at 6x while 2020 P/E is only 2x, has its own “perfect storm” amid the pandemic. The company’s ticker – BULL – tells you all you need to know.

Damac Park Towers A P707, DIFC, Dubai, UAE


Aleksanterinkatu 19 A 4th floor, Helsinki, Finland

Damac Park Towers A P707, Dubai International Financial Centre, Dubai, UAE