Innovation is commonly associated with breakthrough developments in technology or biotech. Yet we broaden that concept from an investment perspective to include any product, brand, business model or strategic differentiation that allows for growth in the market share of an existing market—or in the development of an entirely new market, which we define as transformational growth.

Our Investment Philosophy

Within the emerging world, we see innovation in many sectors, but we observe its greatest concentration in high-growth, high-profit industries—including Consumer Discretionary, Health Care and Technology. These industries are a relatively recent phenomenon creating opportunities that hadn’t been available to emerging market investors historically.

The way we invest is to focus on the types of innovative companies in these industries, rather than focusing on stereotypical emerging market businesses, such as ones that involve commodities or cheap labor.

Our investment philosophy is one that seeks to generate attractive risk-adjusted returns for investors by focusing on innovation in the small- and mid-cap space. We also believe that we can achieve our objectives without exploitation, finding investments that are at the cross section of high earnings growth and benefiting the local population.

Our Investment Process

We have a universe of roughly 5,000 companies to choose from. Using a screening process, we weed out the less desirable companies—and focus on those we believe carry the highest potential for attractive rewards.

There are plenty of companies we avoid because we do not favor the industries in which they operate. For example, we do not invest in any commodities businesses (such as energy, metals or mining), or companies in highly regulated industries (such as telecom or utilities) in which innovation is low or non-existent. Rather, we focus on industries characterized by high levels of innovation.

We also spend a lot of time visiting emerging market countries meeting with companies’ management teams, their customers and suppliers, political leaders, economists and locals to gain a firsthand impression of the regional landscape and context in which businesses operate.

On Environmental, Social and Governance (ESG) Considerations

We believe ESG and impact investing are very important criteria to consider when investing in businesses. These criteria, in our view, cannot be fully captured in mathematical models and need to be evaluated through active management.

What’s most important for us is the social criterion, given our desire to empower local populations where we invest. For example, we seek to avoid companies involved in labor exploitation and would divest our holdings in such companies—no matter their upside potential.

On the Emerging Markets Innovators Strategy

We designed our Emerging Markets Innovators Strategy to complement investors’ existing holdings in emerging markets. Many already have access to large-cap stocks in those regions—whether through active strategies or indices—but our strategy focuses on access to small- and mid-cap stocks. Further, we believe our focus on innovation makes us even more unique.

Case in point: At any given time, we have between 60% and 75% of the portfolio allocated to Health Care, the Consumer Discretionary (see above) sector, and Technology. As a result, we have very little overlap with large-cap indices—typically in the low single digits. In fact, the overlap with our own benchmark is also low, and our active share high.

Overall, we look to harness the investment potential of entrepreneurship in emerging markets and believe we serve a role in providing investors with differentiated exposure to these regions.