Speaker 0:
for an in depth look at the premier might an emerging market sustainable fund. I'm joined now by co managers Fiona Manning and William Skills. Fiona, what's the objective

Speaker 1:
of the fund?

Speaker 1:
So the formal objective, like like many funds, is to deliver long term capital appreciation. Um, in this case, through the investment in emerging markets. Um, but we do have a second, equally important purpose for the fund, if you like, which is to deliver on sustainable, positive environmental and social outcomes.

Speaker 0:
So what? What does that mean for the investment philosophy behind the fund? Because you've got a mixture of sort of sustainable objectives and then some investment ones as well. Well, we are looking for companies that are sustainable in the broader set so financially sustainable, um, but also sustainable in terms of what they do, uh, and and how they go about their their business. Um,

Speaker 0:
and we think that those companies share three really important attributes, So the first of those is unwavering focus on what's good for their customers and using innovation to achieve that. And the second of those is, um, really strong track record of operational excellence. So reinvesting in the business to drive better margins and better efficiency and better asset turnover than its peers.

Speaker 0:
Um, and the third is is careful or or or appropriate use of both company and community resources. Now, be that, um, financial resources in terms of a debt or physical resources in terms of the company's impact on the world around them. And can you dig a little deeper into how you go about selecting stocks?

Speaker 0:
Yeah, So we're looking for really high quality, financially sustainable companies. And to help us do that, we developed a, uh, a proprietary quantitative screen that takes a a wide range of financial metrics. Um uh, really? To try and sign post companies that are the most financially sustainable and what we're looking for, There is the

Speaker 0:
the top two quintile. So the best 40% of of the universe and we keep that universe as wide as we can. So emerging markets, frontier markets, small caps, large caps and then even developed market stocks that have a majority of of revenue or profits coming from emerging markets.

Speaker 1:
When we're digging into to the companies and and undertaking the the all important process of of fundamental research, what we're looking for is to answer three key questions. So the first of those is is what a company does sustainable. So we're looking for companies that have products and services that

Speaker 1:
address an unmet need that is aligned with the UN sustainable development goals. Secondly, we're looking to understand if if how the company operates is sustainable. So thinking about the material e s g risks that the company faces and thinking about how the company manages those appropriately

Speaker 1:
and then finally, we're looking to really dig into and understand the ability of the company to deliver a long term financial outperform. Sustainable return profile is, is, is what we're looking for. But

Speaker 0:
why should investors think about emerging markets now? Because in the last few years you haven't got great returns from emerging markets. I think the one thing you can say is it's been pretty volatile.

Speaker 1:
Yeah, it's true that that the last decade has really been characterised by a period of stagnation for for emerging markets, although interestingly, if you look over a longer term time horizon, if you take take 20 years, actually, emerging markets have outperformed the MS C I world really by virtue of of the that first decade of of expansion.

Speaker 1:
Now that was very much characterised by a very strong investment cycle. Commodities led, driven by China investing very heavily in infrastructure and and urbanisation. So we saw this big period of capacity expansion across the

Speaker 1:
emerging markets. Interestingly, credit expansion as well. And really, the last decade has been a process of of digesting that that overcapacity for want of a better way of putting it where we see the excitement and the opportunity now

Speaker 1:
is that, um we're we're moving away from that. We're seeing a red diversification of global supply chains. You know, we've we've obviously been through a period of of geopolitical tension and that has very much shone a light on the concentration of those supply chains within China.

Speaker 1:
The the trend of near shoring or or fringe shoring, um, really broadens out the opportunity set for a much wider range of emerging markets. So places like Mexico, with the proximity to the US Eastern Europe, with regard to to Europe, um,

Speaker 1:
of course, within Asia itself, opportunities in a wide range of of ASEAN markets that linked to that um, we're seeing the the restart if you like, of a new investment cycle or the start of a new a new investment cycle.

Speaker 1:
And whereas that previous period of expansion was very much driven by by commodities um, fairly dirty commodities iron ore steel. Um, This time around, we see that investment Capex is very much aligned with global sustainable development priorities.

Speaker 0:
William is Is there a danger if global supply chains are being reimagined that at heart, you've got a second guess where a lot of those are going to go and that that's quite a top down game to be playing?

Speaker 0:
Well, I suppose the question is whether or not you think in a, um in more of a bipolar world, whether that leads to, um uh the same amount of consumption or more. And I think probably the answer is that that, um, that the diversification of supply chains will actually lead to, um,

Speaker 0:
some level of of additional redundancy redundant capacity. And that means greater capital spending for which emerging markets, if you take them as a block, are a supplier to that. So in some senses, emerging markets are agnostic to whether or not um, investments in a plant outside of China is economically productive or not. We also think that's one of the reasons

Speaker 0:
is why we're focusing on these highly high quality, financial, sustainable businesses, because those are the ones that have have pricing power. So in this world of cost pressures, as supply chains have reimagined, these are businesses that have have pricing power and can withstand some of those. And Fiona, why are you using the UN sustainable development goals as a measure or as a proxy for sustainability?

Speaker 1:
So we use the UN sustainable development goals, Um, because they act very much as a global framework for the identification of sustainable objectives, global priorities for for investment. We always come back to the sub goals rather than the sort of broader themes, because that really drills into,

Speaker 1:
um, types of sustainable activities in a very precise way. And that's very helpful to us both in terms of delivering on the fund's sus sustainable objectives, but also in terms of delivering on that financial sustainability piece as well. By bringing together a global understanding of what the biggest challenges are and where capital needs to be allocated.

Speaker 1:
That provides a very conducive backdrop for businesses to innovate, to invest, to deliver products and services that meet the needs of these underserved demographics and underserved regions.

Speaker 0:
And William, if you took those sustainable development goals and those themes and some of those sub themes, what would they turn into in in terms of investments? Which areas do you see the secular growth coming from?

Speaker 0:
Well, I mean, we've invested across a really quite a wide range of, um, of sustainable themes. So I think typically people tend to think of, um, the energy transition so that might be renewable capacity or battery development. Um, but there are, um

Speaker 0:
there are a huge range of industrial companies that are feeders into that, um, that that theme be they, um, uninterrupted power supply manufacturers or or inverter makers. There's also, um, themes relating to financial inclusion

Speaker 0:
is an enormous investment theme across emerging markets. Because it covers lending to small and medium size enterprises, it covers lending to underserved retail communities. It even covers, um, things like, uh, life insurance products, which we actually see as a key enabler for consumption. One of the reasons why emerging markets, um

Speaker 0:
uh, households tend to be such prolific savers is because they lack the safety nets that we tend to take for granted and develop markets and life insurance products are, um, are are are are seen by E. M. Government as a key way of, of, of bringing greater consumption to bear in the economy. And just on that point about market cap, I mean, do this the support fund that's likely to have a large cap buy us or will you be very happy hunting in the mid and small cap ground, where appropriate?

Speaker 0:
Well, we're very happy across all market caps. If anything, we see, um, that, uh, smaller midcaps can be even more fertile because, uh, even in developed markets, um, uh, market coverage of these smaller sized companies tends to fall off. Now in emerging markets, that's even even more the case. And so that's where if you are a bottom up stock picker and you're willing to put boots on the ground, so to speak, um, we can you can really find some exciting opportunities.

Speaker 0:
And Fiona Emerging markets are seen as quite volatile, a bit higher risk than developed markets. And historically, most of the sustainable funds have had a Western market bias isn't it quite risky, bit dangerous to combine sustainability and emerging markets in one portfolio,

Speaker 1:
we actually think the opposite. So by bringing, um, the focus on a broad understanding of sustainability. So thinking about financial sustainability, thinking about the proper management of E S G risks combined with that alignment with global priorities for sustainable development, we think that actually that process in itself acts as a a risk mitigation exercise, if you like, by focusing in on the highest quality, broadly sustainable businesses

Speaker 0:
and tell us a little bit about your background as an investment team. What What what's your experience in these markets? What resources can you draw

Speaker 1:
on?

Speaker 1:
So Will and I have both been investing in emerging markets for for a long time. I've got 21 years experience and and will 13, um latterly focused on sustainable investment strategies within emerging markets, but actually, over the years, we've run AAA range of regional and country funds with with different levels of E S G integration and and sustainability outcomes. Um, what was really exciting for us was having the opportunity to really focus in

Speaker 1:
on one product, one strategy that we both feel really passionate about where we believe that we are bringing together the best outcomes in terms of sustainability, the best outcomes in terms of financial out performance and able to deliver that to to clients in in regions where it really makes a makes a difference.

Speaker 0:
No. And I think another thing is that it's fantastic to be part of a a really dynamic and growing company like premier. There's a huge amount of commitment to sustainable products. The E M fund will not be the is not the only sustainable product across the range. And that's wonderful in terms of collaboration and us being able to share ideas with our with our colleagues who are all hugely collaborative. So we've been we've been welcomed and are, you know, really enjoying where we landed. But what makes this fund different to its peers

Speaker 1:
well, surprisingly, considering that frontier and emerging markets are really front and centre, when you think about the positive impact of making progress towards the UN sustainable development goals, there are relatively few strategies that look to combine that dual aim of delivering financial performance whilst achieving those positive social and environmental outcomes.

Speaker 1:
I think the second aspect is that we have real discipline and rigour in the investment process, both in terms of thinking about the the financial outcomes, as as we mentioned, but also in terms of making sure that we have very clear focus on that sustainable piece as well. And that's fully integrated into the research process. And

Speaker 0:
if I can add to that that the

Speaker 0:
the integration of that into the research process, um, it is, uh, means that we are thinking about the sustainable, um, alignment not only, uh, for driving the non financial return, but also, um, actually as part and parcel of, um, a risk mitigation, uh, from the financial return perspective that is being in alignment with areas of priority spending puts you

Speaker 0:
in line for, um, growth areas, areas of investment growth. Um, but it's also potentially, um, a shield in terms of tax and regulation. It's ensuring that companies are are really in, um, investing in alignment with, uh, with with governments. And we think that's a great place to be. We have to leave it there. William Fiona Manning. Thank you very much for joining us. Thank you. Thank you.