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One of the best emerging markets funds shines a spotlight on Indian stocks


In the world of investing in emerging markets, China often dominates. This is not surprising, given that the nation is the largest economy in the group.

But Ajay Krishnan, senior portfolio manager for the $ 415 million


Wasatch Emerging Markets Selection

(symbol: WAESX), believes that Indian companies offer a better return on capital in the long term.

In China, starting new businesses may be easier because of access to capital, while the Indian government has not provided sufficient capital, says Krishnan. This makes Indian businesses better stewards of money in general. “Chinese companies are striving to be the biggest,” he said. “Indian companies aim to be more profitable and generate returns on capital and cash flow. “

This view is clear from the fund’s allocation to India, at 30%, while its exposure to China only represents 6% of the portfolio. In comparison, the fund’s benchmark,


MSCI Emerging Markets,

has a 13.2% weight for India, and a whopping 33% of the index is in China.

Emerging Market Select’s focus on India helped the fund to significantly outperform its benchmark and its emerging market diversified peers and index, by around 20 percentage points over three years, around 12 percentage points over five years. It ranks in the top 1% of its peers, with an annualized return of 23.1% over the past five years. Although the Gold Medalist Morningstar Fund has no charge, its expense ratio of 1.5% is high compared to its peers.

Krishnan, 53, helped launch Emerging Markets Select in 2012. He was instrumental in expanding the company’s emerging markets portfolio in the mid-2000s, when it began to explore the space. , headed at the time by then-director of international investments, Roger Edgley, now retired. Krishnan is also a senior portfolio manager for the $ 653 million


Wasatch emerging India

(WAINX).

Krishnan has worked at Wasatch since he was hired as a junior analyst in 1994. He remained with the Salt Lake City-based company as its assets grew during the tech boom and flourished in its collaborative culture. This corporate culture and the focus on long-term investing give Wasatch its edge, he says. Scott Thomas and Matt Dreith are the associate portfolio managers of the fund, and they all work with 10 researchers who support the company’s emerging market strategies.

Krishnan says India’s push to digitize is an investment opportunity.

Photograph by Lindsay D’Addato

The team uses a mix of quantitative and bottom-up fundamental research to select companies in any industry or country, looking for what Krishnan calls “high probability targets”: companies with desirable metrics like returns. high capital and low debt.

Wasatch wants to own companies for more than five years, so analysts build their own profit models to understand the value of a long-term opportunity. This allows them to buy advantageous companies without having to worry about short-term price fluctuations. They don’t hedge currencies, but integrate currency risk into the potential return of an investment using macroeconomic analysis, says Krishnan.

Technology and financial services are the # 1 and # 2 sectors of the fund. While managers don’t start with themes, they sometimes intersect, such as providing financial services to underbanked and unbanked populations.

1st operation


Bajaj Finance

(BAF.India) illustrates how Krishnan thinks and acts. In 2015, the fund bought shares of the Indian non-bank consumer credit company, impressed with its handling and the way the company uses data. Bajaj uses technology and analytics to fine-tune its service offerings, adjusting the loan offer according to market conditions. “It’s more of a tech company that just happens to be in the lending business,” he says.

In the fall of 2018, the industry caved in to bad debt, causing the share price to drop 40% from its all-time high. The fund stepped in to increase its positions, as its research showed Bajaj could access capital. The share price has since doubled.

Investors underappreciate India’s digitalization push, Krishnan says. Over the past five years, the Indian government has expanded broadband internet infrastructure and created a digital public payment system so that everyone has a bank account as well as a secure cloud-based digital locker. to store, share and verify documents. Combine this push with a young and digitally savvy population, and India is embarking on a virtuous cycle that could last for years to come.

“So far India hasn’t had a tailwind like this,” he says. “India is building a digital country and I think that’s what will serve it well over the next decade. ”

This shift towards digitization and digital banking should benefit other Indian companies, such as holding company n ° 6


HDFC Bank

(HDFCB.India), a leading private lender providing basic banking services, owned by the fund since 2002.

While on the whole Indian stocks have become more expensive, Krishnan says that many lower quality companies are those with higher valuations, and that there are “many high quality companies that trade at higher valuations. very reasonable valuations “.

Total return
1 year 3 years 5 years
WAESX 22.6% 31.8% 23.1%
MSCI Emerging Markets Index -0.1 11.4 10.5
Top 10 holdings
Company / Teletypewriter % of net assets
Bajaj Finance / BAF. India 7.0%
Larsen & Toubro Infotech / LTI. India 5.9
Sea Ltd / SE 5.6
Silergie / 6415.Taiwan 5.3
Globant / GLOB 5.1
HDFC Bank / HDFCB India 4.8
Power Technology Voltronic / 6409 Taiwan 4.6
MercadoLibre / MELI 4.4
TCS Group Holding / TCS.UK 4.3
Lasertec / 6920.Japan 4.2
TOTAL: 51.2%

Note: Assets as of September 30. Returns until December 27; three- and five-year returns are annualized

Sources: Bloomberg; Global Investors Wasatch

Krishnan also sees e-commerce opportunities in Latin America. The fund held Argentina


Free Mercado

(MELI) since 2014, today n ° 8 of the holding company. He bought it as an e-commerce company, but now believes the company’s payments division, MercadoPago, could be a fintech disruptor. In 2021, the company announced an investment of $ 1.8 billion in its operations in Brazil. This could make MercadoLibre a competitor to Brazilian banks if it goes into electronic credit.

Krishnan acknowledges concerns about the impact on emerging markets if the Federal Reserve raises interest rates, which is widely expected in the first half of 2022. When the Fed raised rates in 2013, it led to a rising US dollar and a sharp decline in many emerging market currencies. decline, including Brazil and India, as these countries had low foreign exchange reserves and high foreign currency debt.

Today is different, says Krishnan. Most of the large emerging countries have current account surpluses and build up foreign exchange reserves, he notes: “From a macro perspective, emerging markets are extremely well positioned.

E-mail: [email protected]


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Mary Cashion

The author Mary Cashion