Sarah Godfrey talks to 'the Indiana Jones of fund management', Dr Mark Mobius - famous founder of the Templeton Emerging Markets fund and inveterate traveller - to discover what conclusions his adventures in the realm of emerging markets have formed
Indiana Jones may be back on our cinema screens after an absence of 19 years, but the man dubbed the 'Indiana Jones of fund management' has been present all along.
Dr Mark Mobius, who is manager of 11 funds for Franklin Templeton, but probably most famous for the Templeton Emerging Markets investment trust he set up in 1989, has spent nearly 40 years travelling the world - and particularly the Far East - in search of investment opportunities. He has achieved such fame that last year he was the subject of a Manga cartoon biography - a distinction he shares with such august investors as Warren Buffett and George Soros.
The process employed by Singapore-based Mobius and his team is broadly the same across all the funds they run. Instead of having all the team in one place, there are people in 13 offices in emerging markets around the world.
"That means we have people on the ground, looking at what is going on in their own domestic markets and regions," says Mobius. "We have offices in Latin America, Eastern Europe and Russia, and Asia is obviously our largest area, because it has the largest population and is the biggest market."
Each analyst has four responsibilities: first, to analyse companies; second, to become an expert in a particular industry; third, to become an expert in the area where they are living and working; and finally, to allocate and manage portfolios.
"Our teams are continually working on specialist portfolios," Mobius continues. "Each is assigned a list of companies from our large database of thousands. They identify the most interesting companies, then the analyst does the documentation, for which we have a special format, looking back and forward over five years.
"The analyst will then distribute that to three or four colleagues and one industry expert, and then come to a conclusion on what is a fair price for that stock. It then goes into our action list, and the portfolios are built from that."
While that is the basic system, a lot of the team's work is to meet the management of companies and talk to them, which Mobius says is vital and is an essential part of the process. The product of all the number-crunching and management-meeting is a set of diversified portfolios, each holding around 100 stocks.
Coping with the credit crunch
With developed markets around the world struggling in the wake of the credit crunch, Mobius - who is sceptical of the theory of decoupling between developed and emerging markets - says there has been surprisingly little impact on the markets he looks at.
"Markets had a correction late last year and early this year, and we entered a bear market, but that was not really connected to the sub-prime problems; it was more a case of things having gone too far too fast," he explains.
"The news I am getting travelling round is that order books are really not suffering much. The US is not in as bad a state as people think - at least for now - and also, emerging markets are taking the place of developed markets as customers."
Global markets, he says, are benefiting from the demographic and economic growth of emerging markets: "The US is still important, but not as important as it was - I am talking to manufacturers who are shipping 20% of their goods to the US and the rest to emerging markets."
Mobius says that although investors are placing more money in emerging markets, this has not pushed prices to a level at which it is hard to find value. "Stocks are not in a bubble, but people are gravitating towards emerging markets," he says.
"Flows into dedicated emerging markets funds are going up again, so there is something at work there. Some markets - like China - have seen a big fall in prices, so we are seeing good opportunities in the stockmarket, with price/earnings ratios in the mid and sometimes the low teens."
In this month's market outlook (see pages 38-41), Bryan Collings at Hexam argues that we are all going to need to buy emerging markets as a hedge against structurally higher prices in the developed world. Mobius agrees, pointing out that emerging markets are a secular growth story. "The numbers are very clear - 7% a year GDP growth in emerging markets and less than 2% a year in the developed world," he explains.
Provided investors do not pay out too much for emerging markets stocks, they can provide a hedge against slowing economic growth in the West. Mobius says that it is justifiable to pay the same kind of valuations in emerging markets as are seen in developed markets.
"However," he adds, "developed markets with heavy emerging markets exposure are doing quite well. Exports from the US are surging - they are having trouble finding enough container space, particularly for agricultural products. It's a very mixed picture, and you have to look at it on an individual country and industry basis."
At present, Mobius says his team is seeing the best opportunities in Brazil, and also in China because of the correction there.
"More interestingly, Turkey is a good place to find good opportunities," he says. Brazil (including Brazilian stocks listed in the US) currently makes up just over a quarter of the investment trust's portfolio, with China a near second at 16.57%. South Korea, Russia and Thailand complete the top five, each around 10% of the portfolio, while Turkey comes in sixth with a weighting of 7.80% (all figures to 30 April 2008).
At an industry level, Mobius says anything in commodities looks great because commodity prices are high - steel, aluminium, oil and so on. "Some banks also look good; emerging market consumers are cash-rich, and we are seeing more take-up of credit cards and consumer credit. Consumer products in general have done well, although it is hard to find good opportunities as a lot of the prices have run up," he adds.
A world of opportunity
Outsourcing in the Far East is another story Mobius favours. "Outsourcing in these countries is really booming, which is another indication that there is still life in the US and European economies," he says. "There's a lot of outsourcing in the Philippines, India and elsewhere. Manila is open 24 hours a day because of all the people working at night. They have a cocktail hour at 5am."
Aside from his penchant for similar hats, the parallel between Mobius and Indiana Jones perhaps stems most from the amount of time he spends travelling around the world's developing markets.
"I'm on the road at least 90% of the time," he says. "Yesterday I was in the Philippines; I had four or five days there. Today I'm in Kuala Lumpur; tomorrow Singapore, then Thailand the day after. I spend a lot of time on the road."
Mobius enjoys his itinerant lifestyle, but says that while he doesn't really miss his home comforts, he does miss having a dog. "I'd love to have one," he says, "and a grand piano, but you can't carry that on a plane.
"One day I'll settle down - or maybe I'll just have a dog and a grand piano for a few months of the year."
ASK THE EXPERT
Gary Potter, fund manager at Thames River Capital
We used to own the open-ended Franklin Templeton Global Emerging Markets fund, but we sold it after a period of poor performance around the Asian debt crisis.
There is no doubt Mark Mobius is incredibly knowledgeable - he is one of the most clued in to what is happening in developing markets. His intellectual stature is not to be questioned. But one of the by-products of being that well known is that Mobius and his team are running a huge amount of money - billions of dollars in a whole host of funds - and when you have that amount of money on a global platform, you will tend to need to invest in big, liquid stocks.
On the bull side, Franklin Templeton's team, capability and knowledge are second to none - they have their fingers in lots of pies. But the by-product of running that amount of money is you are less nimble.
Mobius is a great figurehead, but slightly more important to investors is the long-term track record. We have not owned it for some time.
No doubt Mobius is very well connected in emerging markets, and that is very important, but the bigger the oil tanker, the harder it is to turn it around, and I would rather have something a little more nimble and agile.
Mark Mobius, PhD, joined Templeton in 1987 as president and portfolio manager of the Templeton Emerging Markets Fund, Inc. He now directs the Templeton research team (based in 13 global EM offices) and manages EM portfolios. Each year, he spends over 200 days travelling from one emerging market to the other in search of opportunities.
Mobius has spent over 40 years working in Asia and other parts of the EM world, and has extensive experience in economic research and analysis. From 1983 to 1986 he was president of International Investment Trust Company Ltd in Taiwan, Taiwan's first and largest investment management firm. He previously served as a director at Vickers da Costa, an international securities firm, based in Hong Kong. He then moved to Taiwan in 1983 to open an office and direct operations in India, Indonesia, Thailand, the Philippines and Korea.
Before joining Vickers, Mobius operated his own consulting firm in Hong Kong for 10 years, and was a research scientist for Monsanto Overseas Enterprises Company in Hong Kong and the American Institute for Research in Korea and Thailand.
He has BA and MA degrees from Boston University, and a PhD in economics and political science from the Massachusetts Institute of Technology.
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