An experienced hand

When it comes to emerging markets stock investing, Shaw Wagener has seen it all.

He joined Capital as an emerging markets stocks trader in 1981 – a time when investing in the asset class was very much a voyage into the unknown. He became a portfolio manager eight years later and has never looked back.

"In my years as an emerging markets investor I’ve witnessed so much change. A lot of the things we take for granted today we couldn’t even imagine 25 years ago," he explains. "These include things like access to the impressive natural and people resources of the formerly closed economies in Eastern Europe and Asia and the emergence of globally competitive firms in industries that range from technology to consumer to finance."

The experience of having invested through the emerging markets’ many booms and busts – not to mention the ability to see the markets through a trader's eyes – gives Shaw an invaluable perspective on the asset class. "I have learned that it always pays to be patient. As a result, I tend to have low turnover in my portfolios," he explains.

"That said, I also find that from having been a trader I can use the underlying volatility in the markets to our advantage. My trading experience forces me to focus that little bit more on sharp movements in individual stock prices and the dynamics of individual markets."

Home-grown talent

Why does Capital invest heavily in the recruitment and training of inexperienced graduates? Because not doing so would mean missing out on talented individuals like Kirstie Spence, the director of our emerging markets fixed income research. Recruited to Capital’s Trainee Associate Programme (TAP) soon after graduating in 1995, Kirstie’s career path represents everything we could hope to achieve in our drive to develop home-grown talent.

Her first couple of placements were with our legal and human resources departments, but it was when she rotated to the municipal bond trading team that she found her true calling. "I had no idea what a bond was before that assignment," she explains. "But I was very intrigued by the whole process of bonds as a way of investing. I also saw there was lots of macroeconomic analysis involved which is more my natural interest than company research. And given my academic background in international relations, it felt like I was a much better fit."

The TAP experience has made Kirstie a much more resourceful and thoughtful investor. In many ways, it’s the perfect grounding for investment professionals, she says.

"By throwing you in at the deep end and seeing if you sink or swim, TAP makes you more resourceful, work hard, be curious, look for role models and really immerse yourself in the opportunity. It doesn't give you all the answers – you have to figure out your own direction and be flexible enough to do something different if necessary. It’s great preparation for investing."

But the main benefit, she says, are the people you get to work with – either because of their behaviour or the advice they are able to give, "I can remember something pertinent from every single one of my mentors and those nuggets stay with you and help you as you progress."

A seasoned right-brained thinker

"But what does this product mean for society?" This tricky line of inquiry is an example of what has become known among Capital’s investment professionals as a 'Bill Hurt question'. Armed with 60 years of investment experience, macroeconomist Bill occupies a special place within our organisation.

A creative thinker who has always believed an investment thesis should be based on far more than just the numbers, Bill makes a point of meeting regularly with our organisation’s younger analysts to give them a useful 'right-brained' perspective on the trends shaping the investment landscape. On any given day, he may invite one or more of them for a meal with a view to giving their investment ideas a robust stress test.

"While I am a 'right brainer', they’re all left brainers – in other words, thoughtful and disciplined people who are really good with numbers and linear thinkers, " he explains. "But while they are very focused on their responsibilities, I think it is dangerous to think too narrowly, so I try and help them think out of the box – about the things that might be going on in the world that they’re not thinking about."

High conviction investing

Tokyo based portfolio manager Seung Kwak joined Capital in 2002 after more than 17 years as a successful Japan equity portfolio manager. "For me, the most interesting aspect about being a portfolio manager at Capital was The Capital System℠."

"Previously, I was the only portfolio manager on any given fund, and I used to run a more diversified portfolio, trying to cover all the bases, thinking about the risks of not owning different sectors or industries," he explains. "However, The Capital System℠ allows me to focus my portfolio on only my highest conviction ideas. There may be more volatility in my results compared to the broader market, but the other portfolio managers tend to have holdings in other stocks and sectors, and our clients benefit from the diversity of ideas and styles without any dilution in investment conviction."

For Seung, that investment conviction was developed and refined in a market that has been in bear-market territory for 22 years, with many false starts. During that time, Seung has learned many valuable lessons about successful investing. "When trying to identify investment opportunities:

1. Fundamental valuations do matter even though markets can ignore valuation extremes for many years,
2. What is valuable can change depending on market environment and what the market perceives as scarce, and 3) Remember to step back and see if stock leadership is telling you something about a bigger pattern of wealth creation, like the China related commodity boom."