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| James Alexandroff of Arisaig Partners, an investment management company at the marcus evans European Pensions & Investments Summit 2015, discusses the investment opportunities in the consumer business sector. |
LONDON, Apr 22, 2015 - (ACN Newswire) - "In the last 30 years, consumer sector businesses in both developed and developing markets have performed much better than those in other sectors. That is why it is the only sector we look at," according to James Alexandroff, one of the Founding Partners of Arisaig Partners.
Arisaig Partners is an investment management company at the marcus evans European Pensions & Investments Summit 2015, in Montreux, Switzerland, 8 - 10 June.
- Why do you focus exclusively on listed consumer sector businesses in emerging markets?
We define consumer narrowly. We are only interested in businesses that are in the "EAT DRINK WASH WEAR SHOP" space. This sector, which some consider boring, has actually done very well in both developed and developing markets over long periods of time.
This can be explained by their business models, characterised by high gross margins (in essence their raw materials are just water and chemicals) and low capital intensity (for example a bottling line is inexpensive to set up). As a result they deliver high returns on invested capital (ROCE) and substantial free cash flow that can be spent on what Warren Buffett would describe as "deep moats" (brands, distribution, innovation, culture, etc.)
About one third of our portfolios are made up of the subsidiaries of multinational consumer companies such as Nestle, Unilever, Colgate, Heineken, Diageo etc, that are separately listed in emerging countries. The rest of our holdings are indigenous consumer companies. In all cases we favour only the market leaders. In our experience the strong get stronger.
Of course, in the emerging world, consumer businesses enjoy the tail wind of the rising disposable incomes of an aspirant six billion people empowered by the forces of globalisation and digitalisation that act as a counterbalance to what remains, for the most part, disappointing, volatile, commodity dependent macro backdrops.
The concept of the so-called "S" curve underpins our investment thesis - namely that disposable incomes rise faster than wages. For now consumption of the products are companies sell remains very low. For example, in India the amount spent on personal hygiene and care products amounts to only about USD 9 per person per annum compared to USD 250 in the USA and on packaged food only USD 24 a year versus USD 1,250 in the USA. Nestle in India has revenues of only USD 1.5 billion, this despite being the country's largest player.
- Why is your portfolio turnover very low?
We believe that active portfolio management destroys value. Therefore, our approach is a buy and hold strategy. The turnover in our portfolios tends to be low, at less than five to ten percent per annum. We have owned several of our holdings for ten to 15 years. We adopt a valuation methodology which seeks to value our business on a 20-year time horizon.
- Do any countries stand out in terms of potential?
We are bottom-up and so pay little attention to macro economic considerations. Indeed, we often say "the worse the country, the better the company".
In terms of opportunities, India stands out because of the quality of its companies and in particular the large number of listed multinational subsidiaries and several very strong indigenous ones. The opportunities in China are fewer as the subsidiaries are not listed and the competitive landscape tends to be more intense as a result of short brand histories.
- How does Arisaig identify the businesses to invest in and if they are good value?
The opportunity set is limited. In Asia, for example, there are only about 90 or so dominant consumer companies (making up only about five percent of the Index) out of which we have selected 29 for our portfolio. In Africa and Latam the universe is about 60 out of which we have chosen 22 and 18 respectively.
Emerging Market Indices are made up of poor quality, low ROCE businesses. The fact that consumer staples businesses tend to be of much higher quality explains why they tend to trade at higher valuations. But their growth is higher and more predictable. A proforma of our current Asia Fund would have generated 19 percent CAGR EPS growth from 1999 to 2013. With the recent bout of currency weakness having now stabilised, and on the back of much lower oil prices (energy is a large component of an average emerging market consumer's budget), earnings growth will once again re-accelerate.
About the European Pensions & Investments Summit 2015
The 15th annual European Pensions & Investments Summit is the ultimate meeting point, bringing elite buyers and sellers together. The Summit offers regional pension investors and international fund managers and consultants an intimate environment for focused discussion of the key new drivers shaping institutional asset allocations. Taking place at the Fairmont Le Montreux Palace, Montreux, Switzerland, 8 - 10 June 2015, the Summit includes presentations on capturing attractively valued investments, increasing fund resilience, tail risk management and making responsible investing a reality.
For more information please send an email to press@marcusevanscy.com or visit the event website at www.epi-summit.com/JamesAlexandroffInterview
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About Arisaig Partners
Arisaig Partners is a specialist consumer sector focused emerging markets investment boutique set up in 1996. It is wholly owned by its founders and employs 45 people of which twenty three are analysts located in Singapore (its HQ), Hong Kong, Mumbai, Cape Town, Rio de Janeiro and the UK. It manages in total USD 5 billion exclusively for institutions from the USA, Europe and Asia in four dedicated open-ended consumer funds focusing respectively on Asia, Africa, Latam and Globally. It has no marketing department. www.arisaig-partners.com.
Contact:
Sarin Kouyoumdjian-Gurunlian
Press Manager, marcus evans, Summits Division
Tel: +357 22 849 313
Email: press@marcusevanscy.com
Topic: Trade Show or Conference
Source: marcus evans Summits
Sectors: Daily Finance, Daily News
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