(Excerpts from Reuters Global Markets Forum conversation)
NEW YORK, Feb 14 (Reuters) - Global investors miss some of the best plays in emerging markets by focusing too heavily on commodities and ignoring consumer sectors that deliver fatter long-term returns, according to a Wall Street specialist in overseas markets said.
Portfolio manager Charles Wilson of Thornburg Investments, who oversees $1 billion of emerging market assets, told the Reuters Global Markets Forum on Tuesday that patient investors can easily top returns from energy and materials in developing markets by focusing on the consumer discretionary, consumer staples and healthcare sectors. The following are edited excerpts from the conversation: Question: Where is the sizzle in developing markets for long-term investors? Answer: Data show that over long periods (10/15 years) sectors, like consumer discretionary and staples, do better than commodity sectors. The excess returns come from the fact you tend to find better businesses that compound faster in those sectors. It also has to do with the fact the markets are often more consolidated and tend to lead to better pricing power. Q: What do you look for in emerging market companies? A: We tend to get involved when a company is over $1 billion (in market capitalization). We know it’s relatively established at that point. We have much greater success with companies going from $1 billion-$5 billion than from $500 million-$2 billion (in market capitalization). There are quite a few companies in the $1 billion-$8 billion category. Last time I checked, there were 3K to 4K. Q: What are you looking at now? A: We like domestic consumption stories that are somewhat insulated from global issues/concerns right now. India for example. We also think that China is progressing better than the market fears and many companies are trading at good valuations.
One small cap we really like is IMAX China. They are the local sub for IMAX. They had a really tough 2016 basically due to poor box office lineup, but we expect that to turn around this year. We also expect them to continue to sign large new theater contracts, which will drive long-term growth
This interview was conducted in the Reuters Global Markets Forum, a chatroom hosted on the Eikon platform. For more information on the forum, or to join the conversation, follow this link: https:forms.thomsonreuters.com/communities Reporting by Michael Connor in New York; Editing by Paul Simao