A portfolio manager discusses her approach when seeking emerging markets investments, emphasizing strong management teams willing to allocate capital to shareholders.
Noriko Honda Chen: I tend to take a very bottom-up investment approach. I like to invest in companies with very strong business models. I like companies that, over time, will generate a lot of free cash flow, and I think in emerging markets it’s very important to invest with management teams. I think that the management teams are the allocators of capital and that if we’re both focused on allocating capital, particularly to minority shareholders, our investors will do well. We also have seen from our research that, again, companies that pay dividends and companies that are not dividend cutters tend to outperform results-wise as well.
I like to look for companies where they have strong management teams, or improving management teams, and where the companies have a stronger ability to pay dividends over time. One example might be the Indian IT companies, where they’ve been fast-growing and now they’re kind of maturing. And as they mature, they generate a lot of free cash flow, so we’re hoping that with stronger management teams, they will allocate that capital to shareholders.
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