I am keenly aware of my tendency to mention The Book in this space – although I would argue it is only ever in context and I cannot be the only person who does this. Surely, for example, if Enid Blyton had been around a conversation on the suitability or otherwise of four children and a dog as amateur detectives, she might have been moved to venture an opinion?
So it was that when I recently interviewed Michael Godfrey, one half of the management team on M&G’s Global Emerging Markets fund, I felt able to wonder if he had an alternative take on his asset class – one that did not wholly rely on such oftquoted if undeniably attractive themes as rising consumerism, attractive demographics and infrastructure spend. My question, which was not intended to sound as insuff erably world-weary as I fear it might, did have a serious angle. In a world preoccupied by, among other things, whether China suff ers a ‘soft’ or ‘hard’ landing – and, incidentally, if 5% growth in GDP counts as ‘hard’, what is the right adjective should the number ever happen to be negative? – emerging market investors might like some sort of Plan B. As it happens, Godfrey was happy to oblige. “While we very much believe all those longterm thematics are there, you need to look at them with a critical eye and have a sound basis for what you pay for companies,” he said. “You have to realise the emerging markets companies that are benefi ciaries of those themes are not yet of the quality of companies you see in the developed world. “What excites us, however, is the rate at which emerging markets companies are improving – not only in terms of their operational and management ability but also how they treat shareholders. If you can fi nd a good company with a decent management team that is improving its assets operationally and improving transparency for investors, shareholders can enjoy a wonderful period of value creation.” When Godfrey’s fund launched three years ago, another argument favoured by champions of emerging markets concerned diff erential rates of growth. “All we heard was how emerging markets were a good investment because they were outgrowing developed markets,” he said. “The same argument was made between diff erent emerging markets too. “There was supposed to be this causal link between GDP growth and what an investor would make but we have done a lot of work here and all the evidence tells us this is not the case. One huge factor sits between how quickly an economy grows and what you see as a shareholder and that is the company. “It is companies that can convert growth into what matters to us, which is a share price that rises over time and, hopefully, a dividend stream. Investors tend to expect us to talk about GDP growth and long-term drivers but it is a company’s quality and how it deals with those long-term drivers that will really aff ect what our unit-holders see over the long term.”
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