Romina Graiver

Recently in Australia to promote William Blair’s Unit Trusts, launched earlier this year, William Blair’s International and Global Equity Specialist, Romina Graiver, said the Chicago-based asset manager uncovers many quality opportunities in emerging markets.

“Investors know about the growth story in emerging markets however we believe in many cases they underestimate the quality aspect of it,” she said. “Sustained high level of economic growth has enabled many emerging markets companies to generate consistently higher returns on assets and capital. We also acknowledge that some areas and macro events have provided a tailwind effect for companies to do better as they benefit from an economy that is growing, rather than contracting, which is where we are seeing that there is a bit of de-coupling.”

Finding high quality growth companies in emerging markets is Chicago-based global asset manager William Blair’s driving theme with approximately a third of their 2500 global quality growth investment universe made up of emerging markets companies.

Ms Graiver said some emerging markets companies within William Blair’s Emerging Leaders strategy also belong to the Global Leaders strategy, which demonstrates that these companies can be among the highest quality on a global scope.  “We use the same process, research and analysis for companies in both portfolios but it is tougher for an emerging market company to get into the Global Leaders strategy because of the broader opportunity set,” Ms Gravier said.

“William Blair looks at the top down views, but at the end of the day, we use bottom up fundamental analysis to find quality growth companies with strong governance. We are not going to play a theme if we are not finding the best quality growth companies in that theme,” Ms Graiver said. “In emerging markets we like countries where we see tailwinds for companies to do even better, for example countries where we see opportunities for reform, rather than countries where the macro trends are a headwind for companies.”

“We like India and Indonesia for instance,” Ms Graiver said.  “In India we increased our exposure well before the elections. India is a market where we often find very high quality companies with very strong management – like IT services and pharmaceuticals. Early this year we increased our exposure to more cyclical names, which are expected to benefit from an improvement in the domestic economy. We also like auto-related companies in India, some of which are benefiting from car demand recovery and improved sentiment.”

Ms Graiver said William Blair saw a real growth opportunity for India with the likelihood of the Modi pro-growth government coming to power, which would provide a better framework for these quality companies.

“We looked at Modi’s previous work as a provincial Governor and how this boosted GDP growth and in his work fighting corruption and bureaucracy along with feedback from companies who had different activities in different regions.  The standard of living in Modi’s Gunjarat province was much higher than other regions of India.”

William Blair has increased exposure slightly in Indonesia, Ms Graiver said, where there are some high quality companies and again there is likelihood for reform with a new government. William Blair has also increased to an overweight position in Mexico due to the clear intention for structural change and also the benefits of proximity to the United States as a trading partner.

Ms Graiver said in contrast to the above, Brazil, which is struggling with slow growth, high inflation and a current account deficit, does not look compelling from a top down perspective. There are, however, some very attractive  companies with strong operating performance and growth prospects. “Despite the weak macro environment, some companies are benefiting from secular growth drivers, such as evolving consumption patterns driven by social demographic changes; others are supported by government policies  like in  the education space” Ms Graiver said.

In China, William Blair is underweight, however, less than before. Ms Graiver said William Blair sees some optimism regarding recent data reports, helped by mini or targeted stimulus measures however, they see a long term deceleration of economic activity. “China is going through a big deleveraging process which will reduce GDP growth,” she said.  “The government seems committed to reform and is moving forward in many areas (financial reform, SOEs, etc) but at the same time they have to manage the gradual transition from high-leveraged and investment driven economy to a more consumer driven economy. There may be some pain along the way however there are areas in China that are seeing favourable growth trends and the market is attractive from a valuation perspective compared to other markets and compared to its own history.”

In the end it is William Blair’s ability to select quality stories in their universe of emerging markets which benefit from the tailwind of prospects and growth at a macro level which is an additional driver of performance.

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Alex François

Australian investors will have greater global investment choices following the launch yesterday of William Blair’s first unit trusts in Australia.

The Chicago-based asset manager has opened its Global Leaders Equity Fund, Emerging Market Leaders Equity Fund and its Dynamic Diversified Allocation Fund to Australian institutional and wholesale investors (via platforms).

William Blair’s Global Head of Distribution, Dan Charles, said the launch of the trusts is indicative of William Blair’s desire to provide the Australian market with an opportunity to tap into the expertise of portfolio managers around the globe in the areas of global equities, emerging markets and dynamic asset allocation strategies.

“William Blair’s quality growth, bottom-up investment style looks to long-term consistent quality growth in the asset classes of global equities and emerging markets, with a style that is competitive with all of the biggest players in the Australian market,” Mr Charles said. “We look for certain characteristics – the fundamental aspects of an organisation or a company that will give long term consistent quality growth. We only use benchmarks as a reference guide, never as a guiding principle for how we invest.”

Head of Australia and New Zealand Institutional Distribution, Alex François, said William Blair’s unit trusts offer Australian investors access to broader global equity market leaders and to industry sectors and themes that may not be accessible via the Australian Securities Exchange (ASX) – something that, arguably, Australians need even more than United States and European investors, because of the comparatively small size of the Australian market.

“Investors in the developed world, which is now in recovery, need greater exposure to global geopolitical themes,” Mr François said. “We look at the macroeconomic viewpoints of these themes and implement them within a portfolio that provides a total return. Emerging markets also continue to be an area that in the medium to long term will have to feature in most people’s investment horizon and will be able to via our trusts.”

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US tapering presents investment opportunities: William Blair

Fears of stability across the globe around tapering are creating significant investment opportunities in countries like India, Thailand, the Ukraine, Venezuela and Argentina, according to William Blair’s Head of Dynamic Allocation Strategies (DAS), Brian Singer.

On a visit to Australia to promote William Blair’s DAS to institutional investors last week, Mr Singer said geopolitical events do not tend to change the valuation of assets or the value of currencies.  “Risks are definitely out there, but the developments are creating opportunities,” he said. “These events significantly motivate prices away from or towards fundamental value.”

Mr Singer said William Blair’s DAS team assesses each individual geopolitical situation, to decide whether the opportunity is adequately compensating for the risk that is introduced. “What we are doing is taking some of the risk away from just being exposed to the market and adding risk that is uncorrelated to the currency,” he said. “India became our largest position when Raghuram Rajan became the Governor of the Reserve Bank of India in August 2013.”

India is still the William Blair DAS team’s largest position due to a significant interest rate differential and because the currency is cheap relative to its fundamental value. “It looks to be a great opportunity going forward, and a great diversifier for portfolios.”

Mr Singer said the first port of call for the William Blair DAS team in deciding to invest in equity markets, bond markets and currencies all over the world, is to determine fundamental value. “We look for prices that revert back to fundamental value over time,” he said. “Within the current geopolitically unstable environment, there are a lot of strategic negotiations and it is important to understand those negotiations and the behaviours of the players as that pushes prices around.“

On currencies, Mr Singer’s said the William Blair DAS team estimates the value of the Australian dollar at about $0.65-$0.70 to the US dollar. “So it’s a long way away from fundamental value,” he said. “We are short and we are short most of the commodity currencies for a number of reasons. First of all because we believe commodity super-cycles have led investors to push prices up above fundamental values and secondly because we see the opportunity for those prices to revert back to fundamental value as commodity prices come down.”

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Brian Singer

The Eurozone, which has been the very centre of political instability, is where growth is most likely to emerge in 2014 and, in terms of currency, the Indian Rupee will be the place to be, according to Brian Singer, Head of Dynamic Allocation Strategies at William Blair.

On a recent visit to Australia, Mr Singer said that the Eurozone is becoming increasingly more stable, which is conducive to growth. “There is more stability there now and there is likely to be more stability there in the future than the market appreciates and that’s all supportive of growth,” he said.

Mr Singer said William Blair’s Dynamic Allocation strategies are currently overweight Italy and Spain and has other exposures across the Eurozone, including the Dutch and German equity markets and very limited exposure in France. “Those are the primary exposures,” he said.  “The implementation comes through a combination of futures and ETFs.”

Still in Europe, on a sector basis, Mr Singer has a little bit of a leaning towards the financials and does not incur the exchange rate exposure. “We are actually short the Euro and Swiss franc as well,” he said. “We are doing that as a matter of saying we do want equities exposure but we don’t want exposure to the currency. Not only do we not want exposure to the currency, we do want to be short the currency.”

However, speaking of currencies, it’s a different story in Asia, where William Blair has recently taken a long position in the Indian rupee.

“The largest exposure we have in Asia is a long position in the Indian rupee,” Mr Singer said. “It’s not everybody’s cup of tea but it is cheaper now than since about 2007. The discrepancy between the Indian rupee and what we would say is its fundamental value increased to such a degree that we were more comfortable taking a position.”

In addition, Mr Singer said the interest rate differential in India began to move higher, creating a greater incentive to step into the currency. “When you are getting that type of carry in owning the Indian rupee on a forward basis and picking up that interest rate differential, it’s compelling,” he said.

Mr Singer discounted the panic that has occurred in the Indian rupee over the last couple of months as the market’s attempt to perceive what’s going on from the perspective of the experience of the 1998 Asian currency crisis.

“We simply don’t believe the environment is the same as that environment. We aren’t dealing with rates that are coming off, we aren’t dealing with exploding current account issues and challenged reserve situations,” he said. “The Indian current account deficit has been in place for years and the market has become aware of it this year – good for them, it provides us with an opportunity to focus on that and creates the opportunity.”

William Blair is currently short the Australian dollar.

William Blair launched an Australian and New Zealand presence, headed up by Australian executive, Alex Francois a year ago.

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Mr Singer, a leading expert on global macro-economics who visited Australia last week from William Blair’s head office in Chicago, said current geopolitical events give fewer people greater influence.

“This affects market prices and impacts the performance of portfolios,” he said.

To help navigate the turbulence between existing opportunities and ultimate performance, William Blair’s DAS team has devised Game Theory.

“Game Theory provides a framework for making sense of current geopolitical and macroeconomic developments,” Mr Singer said, “And for assessing why prices deviate from values to help determine if investment opportunities provide enough compensation for the risk involved.”

Mr Singer, a pioneer in advancing the active management of multi-asset and currency portfolios, said William Blair’s DAS team positions portfolios to benefit from or protect against potential displays of power.

“We seek short-term opportunities to modify the timing and magnitude of investment positions and benefit from the inevitable long-term movement of market prices toward fundamental values,” he said. “We then position the portfolio to take advantage of the opportunity or to eliminate the risk.”

While William Blair has used Game Theory informally in the past, the process has now been systematized and is an integral part of William Blair’s three-stage DAS investment process.

“We now employ Game Theory across our Macro Allocation Fund, DDA SICAV and private funds,” Mr Singer said.

William Blair has an Australian and New Zealand presence, headed up by Australian executive, Alex Francois.

“During my recent visit Down Under, Australian institutional investors showed keen interest in Game Theory,” Mr Singer said. “We are looking forward to working with them.”

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Global investing

The world is now a better place to invest from an equity perspective than it has been since the Global Financial Crisis (GFC), according to US-based, global investment manager, William Blair Investment Management (William Blair).

Ken McAtamney, Co Portfolio Manager of William Blair’s Global Leaders Strategy, who visited Australia this week, said the outlook for global investing has improved as a result of the US being able to avoid the fiscal cliff; the political will in Europe to save the Euro and the Euro zone and re-acceleration of growth in China.

“Our view is that the outlook is more positive than is generally believed,” Mr McAtamney said. “But a recovery is not going to be smooth – it is going to come in fits and starts.”

William Blair Investment Management has more than $47 billion in assets and provides portfolio management for global equities, emerging markets equities, US equities, US fixed income and alternative assets.

Global Opportunities
Mr McAtamney said there are good opportunities in each of the three major global regions.

The US
In the US, Mr McAtamney said the housing market is particularly attractive. “Activity in the housing market is a large part of the US economy,” he said. “If you look at the related, derivative jobs around that, it could represent about a third of potential employment in the US – so that’s a sector in the US that we are very focussed on.”

Europe
In the European region, Mr McAtamney said it is very clear that the sovereign financial situation has been de-risked. “The political will to save the Euro and save the Euro zone is clearly there and thus the European financial sector is fairly interesting,” he said. “It has been controversial and relatively unloved and therefore there are some good valuation opportunities for  the better companies there.”

Asia
Looking to Asia, Mr McAtamney said the region’s diversity makes it an attractive proposition. “The areas that could be favourable run really the entire gamut across all sectors,” he said. “So whether it is resources in Australia, consumer companies in China or industrial exporters in Japan, we think there are quite a few compelling opportunities.”

China, however, is particularly interesting.  “We think they have clearly stabilised the slowing of their growth and to some extent we are seeing a re-acceleration – and we think that is critical, not just for China, but for the region overall.”

William Blair has an Australian and New Zealand presence after launching in Sydney late last year.

“We have capabilities that have been successful for sophisticated investors around the globe,” Mr McAtamney said. “We believe our approach and our investment culture fit well with our assessment of the Australian institutional investing market, which is also extremely sophisticated.”

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Mr François is a highly respected professional with more than 20 years of experience working with institutional investors throughout Australia and New Zealand, and brings with him a deep working knowledge of investment management requirements and portfolio implementation. He will report to Dan Charles, global head of business development and client service.

“Alex has a proven track record of leading investment management businesses in the Australian market and we are extremely pleased that he has joined our team,” said Michelle Seitz, CFA, head of William Blair Investment Management and a member of the firm’s executive committee. “Despite the volatile markets, William Blair has been fortunate to have long-term consistent performance of its investment strategies, and we are excited about the opportunity to serve a fast-growing and sophisticated client base in Australia and New Zealand.”

Mr François added, “I was attracted to William Blair’s impressive track record across various investment strategies, which I believe are well-suited for the Australian and New Zealand institutional market.”

Mr François spent the last two years as head of distribution-investments at Provident Capital Limited in Sydney, Australia. Before that, he was a managing director, head of sales and marketing for Principal Global Investors Australia for six years, where he was responsible for the successful relaunch of Principal in Australia following the sale of BT to Westpac. Prior to his position at Principal, Mr. François held senior roles at Schroders Investment Management Australia, Deutsche Asset Management, and ING NZ Ltd. He received his M.B.A. and a graduate diploma of funds management from Macquarie University.

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