As wealth grows across the globe, emerging markets have provided new opportunities for investors. This is particularly the case as the population ages, which requires new services and products. Equities CIO George Evans, who oversees OppenheimerFunds’ U.S. and international equities teams, spoke with Financial Advisor IQ about how investors can benefit from evolving markets and why globalization has made it easier than ever to gain access.
Here is the full text of his Q&A:
Financial Advisor IQ: Per capita income is rising worldwide. How do you think that can translate into investment ideas for financial advisors in the U.S.?
Evans: So there are a number of ways. The first thing is to recognize that you do not have to be directly invested in emerging markets to benefit. There are many companies that will benefit. There are local consumer companies, financial institutions, things of that nature. But there are many Western companies benefitting from this trend.
It goes from basic consumer goods right up to luxury goods. So many great U.S., European and Japanese-based consumer goods companies now have a vastly larger opportunity to exploit in terms of selling their products. Let’s take a company like Unilever1, the Anglo-Dutch company. It derives 57% of its revenues from emerging markets, about a quarter from the U.S., and the rest from Europe.
Our strategy has principally been investing through developed market consumer goods companies that are selling into the emerging markets. I think many people find it surprising that luxury goods—an area dominated by European companies like LVMH2 (Moet Hennessy Louis Vuitton), Burberry3, and Richemont4, among others—over the last handful of years has seen the proportion of revenues derived from emerging market consumers exceed 50%.
Financial Advisor IQ: Sounds like an interesting approach. Still, just looking for Western companies that are doing well in emerging markets will produce a massive list. How do you drill down into that?
Evans: I think you have to look at the proportions of a company’s revenues that are derived from these markets and do the legwork on a company-by-company basis. There’s no shortcut or macro way of looking at it that will allow you to get the granularity you need to actually affect the investment opportunity, short of going company by company.
Financial Advisor IQ: Are there differences in consumerism and in an aging population from market-to-market or region-to-region or culture-to-culture?
Evans: Well, I would say things are broadly similar. A propensity to consume more healthcare as you get older or what you’re going to do with retirement or your need for one type of insurance or another is the same whatever country you live in.
So there are different levels of penetration in different parts of the world, but generally the solution tends to be more similar rather than different.
People are very used to thinking historically of opportunities on a “where is the best opportunity by country” level. And then look for the right stock underneath afterwards.
However, the degree to which all industries have become more globalized over the last 35 years is really very pronounced. We thereby tend to think of a worldwide industry and who does it better and how that better will translate into more revenues and more profits and therefore a better stock. Rather than thinking in China, it’s like this. In India, it’s like that. In Brazil, it’s this way. It’s all very different. There tend to be competitive players that apply that winning business formula in many, many geographies. Rather than differentiated as a first step on a country-by-country or region-by-region basis.
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11.03% of Oppenheimer International Growth Fund assets were invested in Unilever as of 4/30/17.
21.27% of Oppenheimer International Growth Fund assets were invested in LVMH as of 4/30/17.
30.98% of Oppenheimer International Growth Fund assets were invested in Burberry as of 4/30/17.
41.11% of Oppenheimer International Growth Fund assets were invested in Richemont as of 4/30/17.
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