top of page



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 depreciating 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.


As active owners of the businesses we invest in, in July we engaged with our portfolio companies to help them unlock shareholder value. Earlier this year we devised a six-stage engagement process utilizing academic research and our own experience, and with the help from a top IR expert, a successful activist EM investor, and the head of academic research at the UN PRI. Our engagement efforts will progress from advising companies on how to improve their investor transparency to supporting them with capital allocation to helping them create sustainability policies aligned with UN SDGs. So far in June and July we had initial engagement calls with 19 companies and some have already progressed to stage two of our recommendations (while a couple were sold due to their unwillingness to engage).

Also in July our white paper was published in the Centre for Economic Policy Research (CEPR)’s Covid Economics, a special academic journal disseminating vetted scholarly work on the COVID-19 pandemic in real time. Our research paper discusses our findings from surveying the 632 companies we met during our 12 Markets in 12 Months project regarding the COVID-19 impact on their operations, where they are making cuts, and the ways they have supported their stakeholders during the crisis. One significant takeaway from our analysis is that astute investors are able to capture excess returns in emerging markets which our research found to be far from efficient (e.g. the delayed recognition by the market of a 1,000% returning Malaysian medical glove manufacturer which we added to the portfolio in March). Our other major finding is that stakeholder-centric companies experienced lower stock price declines during the pandemic selloff, another trend that positively contributed to our top 1% performance during the pandemic’s recovery period.


In 2018, we got burned in Turkey when its currency depreciated by 40%: due to our fund’s significant lira exposure we ended the year in the bottom 30% among peers. In order to avoid future currency crises, we created and implemented a macro risk management framework that tells us when macro risks become disproportionately high. In August of last year, our framework helped us avoid the 50% collapse of Argentine peso. Our model recently started flashing red as Turkey's reserves were quickly melting and the country wouldn't be able to cover its short-term debt obligations. Our Turkish investments are in theory well-positioned to navigate the so-familiar economic turbulence thanks to business models naturally hedged against macro volatility: an exporter that derives revenue in euros, a construction firm with contracts in hard currency, and a brokerage house that always sees increased trading volumes in crises. However, we learned a valuable lesson from the 2018 lira crisis when only 3 out of 300 stocks managed to stay positive in euro terms. Therefore, as much as we like our best picks in Turkey, we sold all our shares and will now watch them from the sidelines until the macro risks subside. 


This month we also invested in a Malaysian engineering and construction solutions company which amidst all the coronavirus-caused economic turbulence managed to strongly grow its backlog. The firm, which has typically served customers from the energy sector, more recently has diversified into the ICT data center segment and is benefiting from vast ICT infrastructure investment spending in the Middle East where several of its large customers are based. At only 10x P/E at a time when valuations in Malaysia appear very much stretched, this company epitomizes what we've been looking very hard for in the last few months: a cheap business that is growing during the pandemic as well as outside of the pandemic.


In September, a media content producer in Thailand became the fifth stock in our fund to double this year despite the pandemic. We originally bought this company at a valuation of only 10x P/E after meeting its transgender CEO during our month-long trip to Thailand last November. The market seems to have overlooked this obscure company which has been producing more content at better margins. Additionally, it has thrived during COVID-19 when TV networks could not produce their own content due to lockdowns and had to outsource more. We believe its upcoming listing on Thailand’s main stock exchange next month could be the next catalyst.


The five portfolio companies that doubled have contributed to our fund’s remarkable flat performance in a struggling market (-3% vs -23% for the average emerging market) and the fund’s since-inception ranking of #2 out of all 22 listed frontier funds globally. However, this performance hasn’t been without volatility. In fact, our 49% 6-month return was preceded by a -35% decline during the first quarter of the year. Although the average emerging market had fallen by almost the same amount, it takes patience for investors to realize superior returns over the long run.


It’s no coincidence that we have had very few redemptions this year despite the volatility. We seek patient clients with long-term perspectives, and we take great care to educate them about how our highly differentiated investment process results in large tracking error when measured against the traditional EM index. A great example of such a long-term client is a Finnish pension fund that became our investor in September following four years of rigorous due diligence. Over the course of 11 in-person meetings, dozens of emails, and a research trip to Vietnam where they witnessed our company meetings first-hand, this sophisticated investor has learned our process inside and out and will surely be with us for the long haul.


Our fund had its 7-year anniversary in October. Since inception, our performance is in the top 5% and our information ratio is the highest among listed funds investing in frontier and smaller emerging markets. Over this time we have outperformed the average emerging market index by 6.7% per year.


In April and June, we asked 632 companies we met in person over the past year how COVID-19 affected their operations and whether they benefited from the pandemic. This month, we repeated the exercise, asking 10 questions including about revenue impact, expectations for next year, and what permanent business changes they are considering in consequence of the pandemic.


As a result of what we learned, we increased our position in an Indonesian wooden furniture manufacturer with appropriate ticker WOOD. The company benefits from an increased demand from the US – their largest market constituting 76% of total sales – as people refurbish their residences and purchase new furniture due to the pandemic shift to work from home. The firm’s US exports, which grew 68% YoY in H1, are further boosted by the ongoing US-China trade war as the tariffs imposed on Chinese furniture divert US purchases to alternative locations. The market has also missed that the value of the company’s manufacturing land holdings has strongly appreciated due to urbanization of the surrounding area. Furthermore, the CEO plans to derive additional profit by using the vast forestry assets in carbon allowance trading. With stellar growth prospects and hidden land value, at only 15x LTM P/E this stock is a bargain to us.


We also divested from the Malaysian medical glove manufacturer which had grown 1,400% since we bought it in March. We switched our investment to a cheaper alternative: a Thai holding company that owns 56% of a medical glove subsidiary which went public in July. This subsidiary stake alone is valued 40% higher than the entire parent. We believe the low parent valuation of only 5x 2021 P/E is grossly undervalued at a time when the demand for medical gloves is skyrocketing. We expect the multiple to expand and the holding company discount to narrow while earnings continue to grow rapidly.


Thanks to the second-highest monthly performance since its 2013 inception, our fund is now one of the only emerging frontier funds globally to achieve a positive return year-to-date at +10%; meanwhile, the average emerging market is still down -17%. This also places the fund’s 7-year return the highest among its peers. 


This month we increased our position in a Malaysian renewable energy contractor. This $100m company was founded over 20 years ago as a textile operation but got a second life in 2019 when a new major shareholder with a multi-decade experience as an engineering contracting CEO and a vast network of contacts across Asia and the Middle East joined the board as the chairman and replaced the management team to position the business for hyper-growth. Thanks to the rapid acquisition of contracts in various emerging economies from Indonesia to Nepal over the past few quarters, the firm has already expanded its earnings over 100% and stands to continue triple-digit growth next year. Given such spectacular growth prospects and the accelerating global shift to renewable energy, the company’s valuation of only 9x 2021 P/E looks like a bargain.


We also saw continued progress of our friendly shareholder activist engagements with our portfolio companies which aim to unlock shareholder value through improvements in disclosures and transparency, stronger investor community engagement, and greater focus on material ESG practices. Following our recommendations, an Indonesian wooden furniture manufacturer organized a virtual investor event attended by 700 local institutional and retail investors; fast-growing yet undervalued Pakistani food company and Malaysian semiconductor business used fully revamped, comprehensive, and informative investor presentations in their analyst meetings; a Vietnamese IT distributor recorded their first-ever quarterly results webcast, attended a large emerging markets conference, and had several foreign investor meetings which led to new funds becoming their shareholders; and a Malaysian dairy company issued their first-ever quarterly press release and hired an external investor relations professional to communicate their growth and quality to investors.   


Our fund returned +20.1% in 2020, finishing the year ahead of all other funds investing in small emerging and frontier markets. This is especially notable given that the indexes of 8 of the 9 countries we invested in this year were negative, the average emerging market index lost -10%, and only 15% of peer funds delivered positive returns.


This strong performance in a remarkable Covid year stemmed from our successful stock picks made as a result of our disciplined process of investing in overlooked, cheap, high-quality companies growing in any economic environment. This year, we also had a total of 34 friendly shareholder activist engagements with our portfolio companies, in which we provided 114 value-enhancing recommendations and made 235 follow-ups to stimulate their implementation.


In December, we ran a comprehensive analysis of our portfolio and considered new investments to ensure optimal positioning going into the new year. We sold a Thai media content producer which had doubled this year, fully realizing our investment thesis. We also increased our shareholding in a Malaysian staples company whose outdated name makes it look like a tin can manufacturer while in fact 80% of its sales comes from dairy products; with a new plant in Mexico going on-line next month as well as capacity increase in Malaysia’s Johore province they stand to deliver strong growth in the next several quarters.


After almost half a year of waiting on the sidelines due to currency concerns, we returned to Turkey, investing in two companies that we have successfully owned before: a furniture manufacturer whose 50% sales growth has surpassed even their own expectations and which is strongly expanding exports of their new brand, and a brokerage business whose extraordinary returns on capital and consistent double-digit earnings growth comes at only 8x LTM PE at a time when retail trading is as active as never before and as institutional investors get comfortable with Turkey again after the president’s son-in-law finance minister resigned, the central bank chief was ousted, and the key interest rate was raised to 17%, helping stabilize the lira.

bottom of page