Uncovering small- and mid-cap emerging market companies with the potential to be attractive long-term investments is no easy task. Aside from the fact that the individual markets themselves are separated by continents, languages, cultures, and forms of government, there are approximately 5,000 small- and mid-cap companies of every type in the emerging markets universe.
Due to the vast size and diversity of that market, traditional Wall Street-type investment research tends to overlook many of the most promising and innovative companies. That’s why there is no substitute for in-person, on-the-ground research when it comes to identifying the companies and investment ideas that hold the most potential, says Heidi Heikenfeld, CFA, Portfolio Manager of Oppenheimer Emerging Markets Innovators Fund.
Heidi estimates she spends about 35% of her time traveling in emerging markets, meeting with companies, and researching investment ideas. She believes that is necessary because many of the most interesting companies in the small- and mid-cap space are not well understood by the markets.
According to Heidi, finding the most promising long-term small- and mid-cap emerging markets investment opportunities is partly a process of elimination. She says factors such as a stagnating business or heavily regulated industry help her weed out the companies she does not want in her portfolio. By the same token, that helps her zero-in on companies that appear to have the innovative, disruptive business models and long-term growth potential she seeks.
It is often difficult to distinguish between companies that have what appear to be strong ideas or business models, and those that are able to successfully execute and create value for investors over the long term. That is why Heidi focuses on factors such as the strength of a company’s management, whether the regulatory environment may hinder a company’s business prospects, and the competitive landscape. She and her team always back-test assumptions, no matter how enthusiastic she may be about a business concept.
Once all the pieces fall into place and a thorough, objective analysis is completed, the most important consideration is price.
In the accompanying videos, Heidi explains her in-person, on-the-ground approach to researching small- and- mid-cap investment opportunities in the emerging markets, and discusses her investment process.
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