re-emerging emerging markets
Cartica Management is proving that when it comes to emerging markets, activism is probably more important than who’s living in the White House.
As the aftershocks from Donald Trump’s stunning presidential victory keep investors guessing, few sectors have suffered more than emerging markets. That’s just fine by Teresa Barger, chief executive of the $2.7 billion emerging-markets specialist Cartica Management, who gives little credence to Trump’s blustery rhetoric.
“Being against globalization is like being against winter and refusing to buy a winter coat,” Barger says, paraphrasing Nelson Mandela. She launched Cartica in 2008 with three cofounders—farida Khambata, Steven Quamme and Mike Lubrano—after 21 years largely spent funding businesses in developing countries.
Riddled with corrupt government actors, empire-building families and outright fraud, emerging markets are viewed as the Wild West by most institutional investors. Many take a diversified-index-fund approach, but Cartica insists on activism, targeting unloved companies with good businesses.
Take Cartica’s largest holding—alsea, a Mexico City-based franchisee of Starbucks, Burger King and Chili’s. Before Cartica’s intervention in 2012, the company buried its results by brand.
Cartica took a small stake, joined its board and began pounding the table for more disclosures. Alsea ultimately set up an investor day in New York, which it now holds annually. The stock is up more than 50% over the past three years.
Trump’s election sent Alsea plummeting by 16%, but Barger, 61, is doubling down. Having nerves of steel in the face of volatility is a prerequisite for investing in developing markets. So far Cartica has annual returns of 9.9% since 2010, compared with an emergingmarkets benchmark that has fallen 1% annually over the same period.
Cartica’s approach starts with a topdown analysis of economic data, currency movements and political developments to find “green light” countries. The common traits: a strengthening local currency, improving credit profiles and a sense that the government is pursuing marketoriented reforms. Another favorite, more anecdotal measure is checking with local stockbrokers to see if well-heeled natives are bringing investment dollars back into the country.
“By the time equity flows show up, it’s too late,” says global strategist Khambata from Cartica’s Washington, D.C., office.
From there Cartica screens stocks using 40odd financial metrics. Its sweet spot is underfollowed companies with market caps between $1 billion and $5 billion. Another key is tapping local contacts—typically family members or controlling shareholders. What Trump-safe regions does Cartica like?
The Philippines, despite belligerent rhetoric from President Duterte, is a favorite. Top holding: infrastructure conglomerate Metro Pacific. “The Phillipines has self-sustaining growth because they’re generating a surplus—not living off capital flows,” Khambata says.
India, a “flashing green light.” Equities aren’t cheap, but Prime Minister Modi is a “doer,” Barger says, and the rupee is appreciating.
Mexico, Trump’s chief target, warrants caution, but according to Barger, tough talk on trade doesn’t have to equal Draconian tariffs.