First state investment's Angus Tulloch's aa-rated fund outperforms peers with bid-t0-offer return of 58% over the three years to 25 March 2002
First State's Angus Tulloch believes success as an emerging markets investor rests on rating companies according to their quality and assets.
It is an area that is attracting fresh notice because of its recent attractive returns. Emerging market portfolios have been among the best-performing funds in the entire funds universe, both on a three-year and a three-month view.
As other markets become fully priced, Tulloch is optimistic about the relative potential upside to emerging market equities.
In addition, he is confident that increased investor appetite for the region is not out of control and people are taking the time to consider risks.
While returns for the average UK All Companies fund are negative over three years, the average global emerging markets fund rose 25% and the average Latin American fund went up 43.6% to 15 March on an offer-to-bid basis.
Tulloch, head of global emerging markets and Asia Pacific equities at First State Investments, said returns will stay positive as well, as leading indicators in the US pick up.
His Standard & Poor's AA-rated Emerging Markets fund has comfortably outperformed peers with a bid-to-offer return of 58% over three years to the 25 March 2002.
The First State Asia Pacific portfolio, which he also manages, has an even higher rating at AAA. It has returned 86.5% on the same basis over three years and is top of the class over three and one-year periods.
As well as seeking companies with strong asset bases, Tulloch examines the development of a company from as far back as seven years, simply to get a feel for the culture.
With three fund managers under Tulloch, the team is constantly reviewing the portfolio and will soon be adding telecoms to the fund. Tulloch talks about his management of the emerging markets portfolio.
What is your investment style?
We are bottom-up fund managers that focus on growth. The main principle of the fund is to invest in quality companies that have strong balance sheets, good franchises and managers with integrity.
How is the team structured?
It is a nine-strong team based in Edinburgh, with one analyst in our Singapore office.
We also have access to global sector resources and analysts who focus on sectors throughout the world. These analysts are drawn from various industries so have a greater insight into their market. For instance, the healthcare analyst was head of GlaxoWellcome policy. Then there are three portfolio managers, each with responsibilities for a separate region ' emerging Asia, Latin America, and emerging Europe, the Middle East and Africa.
And where do you come in?
I co-ordinate the whole process. But each of the three managers has full discretion about where they invest subject to overall disciplines.
What are the overall disciplines?
Companies have to be well-managed, have sound balance sheets and strong franchises ' they need to be price givers rather than price takers.
We tend not to have more than 20% invested in a country or sector. These restrictions can vary. For instance, a very small sector may have a limit of 5%. Our research also has to be high quality and certain questions must be answered before we invest.
We look at things such as how the managers of a company are incentivised and whether it is in line with the needs of the business.
Their attitude to risk, in terms of expansion and how much debt they would take on is also very important.
We do not just look at the company over the past two
1970: Graduated in Economics and History from Cambridge University.
1970: Joined chartered accountants Whinney Murray, now Ernst & Young, for four years.
1980: Joined Cazenove & Co as a Far Eastern specialist based in Hong Kong.
1988: Joined Stewart Ivory, now part of First State, to establish an Asia Pacific and Emerging Markets capability.
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